On Sunday a report emerged that the Bureau of Labor Statistics (BLS) will revise job numbers for a recent 12 month period downward by almost 1 million. According to financial news site Zerohedge, “This means that all ‘beats’ recorded in the past year will have been misses and the US job market is in far worse shape than the admin would admit.”
On Wednesday, the Bureau of Labor Statistics will downward revise jobs for the April 2023-March 2024 period by up to 1 million. This means that all "beats" recorded in the past year will have been misses and the US job market is in far worse shape than the admin would admit.
— zerohedge (@zerohedge) August 18, 2024
Weeks ago, macroeconomic commentator Mike Sherlock posted an analysis of how job numbers are calculated. The article, titled, “Expect the BLS to Revise Job Growth Down by 730,000 in 2023, More This Year,” explains that the BLS uses questionable adjustments to job data.
In his explanation, Sherlock points out that the BLS uses three data sets to formulate job numbers each month: the Business Employment Dynamics (BED), which is a subset of the larger Quarterly Census of Employment and Wages (QCEW), and the Current Employment Statistics (CES). The CES is a metric directly used in monthly jobs reports, but it “is based on about 670,00 businesses vs 9.1 million for BED and 11.6 million for QCEW.” The CES is used because the larger data sets are commonly not available for many months, but is less accurate and does not account for business openings and closings.
To adjust for the quality of the CES data, the BLS uses a “Birth-Death model” estimating the births and deaths of businesses. This model does not rely on real-time data. Sherlock summarizes the effects of using this model: “In normal times, not entering into recession or out of recession, the birth-death model is subject to mostly random fluctuations. The monthly jobs reports are not very accurate, but errors generally balance out over time. It’s another matter near recessions and the last one was one for the record books.”
His analysis is corroborated by Bloomberg Chief Economist Anna Wong, who has written, “We estimate that nonfarm payrolls as reported by the establishment survey will likely be revised down by 730k for the last three quarters of 2023.” Speaking to the trend continuing in 2024, she said: “The labor market has been cooling for awhile — the deterioration isn’t sudden. Given its dual mandate, the Fed is likely behind the curve on cutting rates. As such, we expect the unemployment rate to reach 4.5% by the end of 2024.”
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