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I'm Calling BS on the Second Straight Amazing Jobs Report, Understanding Why

The economy added a much higher than expected 528,000. This follows a much higher than expected  372,000 jobs in June. But the discrepancy between jobs and employment is amazing.
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Nonfarm Payrolls vs Employment Level. Chart by Mish. One set of numbers is wrong.

Nonfarm Payrolls vs Employment Level. Chart by Mish. One set of numbers is wrong.

BLS Jobs Statistics at a Glance

Total nonfarm payroll employment rose by 528,000 in June, and the unemployment rate dipped 0.1 percentage points to 3.5 percent, the U.S. Bureau of Labor Statistics reported today.

Job growth was widespread, led by gains in leisure and hospitality, professional and business services, and health care. Both total nonfarm employment and the unemployment rate have returned to their February 2020 pre-pandemic levels.

Here are the details from the monthly BLS Employment Report.

  • Nonfarm Payroll: +372,000 to 151,980,000 - Establishment Survey
  • Civilian Non-institutional Population: +177,000 to 264,012,000
  • Civilian Labor Force: -63,000 to 163,960,000 - Household Survey
  • Participation Rate: -0.1 to 62.1% - Household Survey
  • Employment: +179,000 to 158,290,000- Household Survey
  • Unemployment: -242,000 to 5,670,000- Household Survey
  • Baseline Unemployment Rate: -0.1 to 3.5% - Household Survey
  • Not in Labor Force: +239,000 to 100,051,000 - Household Survey
  • U-6 unemployment: No Change 6.7% - Household Survey

Revision Details

  • The change in total nonfarm payroll employment for May was revised up by 2,000, from+384,000 to +386,000
  • The change for June was revised up by 26,000, from +372,000 to +398,000. 
  • With these revisions, employment in May and June combined is 28,000 higher than previously reported. 

Economists' Estimates

  • Nonfarm Payrolls: 250,000 expected vs 528,000 actual
  • Unemployment Rate: 3.6% expected vs 3.5% actual
  • Manufacturing Payrolls: 15,000 expected vs 30,000 actual
  • Hourly Earnings: +0.3% expected vs 0.5% actual

The above estimates from Bloomberg Econoday.

Payrolls were much stronger than expected. But there's a continued huge divergence between jobs and employment.

Change in Nonfarm Payrolls

Change in Nonfarm Payrolls 2022-07

For the third month we see strength in lagging sectors: Leisure and hospitality, and health services.

Change in Nonfarm Payrolls Since February 2020 

Change in Nonfarm Payrolls Since February 2020 2022-07

Despite recent gains, Leisure and hospitality employment is 1.2 million lower than in February 2020.

Part-Time Jobs

The above numbers never total correctly. I list them as reported.

However, it's worth noting that for the second month full-time employment has declined. 

In March, the BLS said full-time employment was 132,718,000. Today it says 132,577,00. Again we see huge divergences between the two reports.

Unemployment Rate – Seasonally Adjusted

Unemployment rate from the BLS, chart by Mish

Unemployment rate from the BLS, chart by Mish

Nonfarm Payrolls and Employment Levels

Nonfarm Payrolls and Employment Level 2022-07A

Recovery Synopsis

  • Jobs have finally recovered all losses.
  • Employment is down by 576,000
  • The numbers do not reflect increasing population or the type of job recovered.
  • The red and blue dotted lines show the still significant impact Covid has on the economy.

The impact of demographics and Covid are both in play. Neither jobs nor employment will ever return to the pre-Covid trendline.

Hours and Wages

Average weekly hours of all private employees was unchanged at 34.6 hours. Average weekly hours of all private service-providing employees was unchanged at 33.5 hours. Average weekly hours of manufacturers was unchanged at 40.4 hours.

Average Hourly Earnings of All Nonfarm Workers rose $0.15 to $32.27. Year-over-year, wages rose from $30.67 to $32.27. That's a gain of 5.2%.

Average hourly earnings of Production and Supervisory Workers rose $0.11 to $27.57. Year-over-year, wages rose from $25.96 to $27.57. That's a gain of 6.2%.

Despite the gains, wages have not kept up with inflation.

Birth Death Model

Starting January 2014, I dropped the Birth/Death Model charts from this report.

For those who follow the numbers, I retain this caution: Do not subtract the reported Birth-Death number from the reported headline number. That approach is statistically invalid.

The model is wildly wrong at turning points but otherwise means little. It is also heavily revised and thus useless.

Alternative Measures of Unemployment

Table A-15 2022-07

Table A-15 is where one can find a better approximation of what the unemployment rate really is.

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The official unemployment rate is 3.5%. However, if you start counting all the people who want a job but gave up, all the people with part-time jobs that want a full-time job, all the people who dropped off the unemployment rolls because their unemployment benefits ran out, etc., you get a closer picture of what the unemployment rate is. That number is in the last row labeled U-6.

U-6 is much higher at 6.7%. Both numbers would be way higher still, were it not for millions dropping out of the labor force over the past few years.

Some of those dropping out of the labor force retired because they wanted to retire. Some dropped out over Covid fears. And still others took advantage of the strong stock market and retired early.

The rest is disability fraud, forced retirement, discouraged workers, and kids moving back home because they cannot find a job.

Changing Employment Dynamics

Covid-19 had an enormous impact on the labor force. Some job losses are permanent, millions of other other people now work from home.

Stimulus provided incentives to not work and some of those workers are returning to the labor markets now.

As of January 2022, there were 22 million workers age 60 and over. Millions will retire soon which will put upward pressure on hiring.

Strength is Relative

It’s important to put the jobs numbers into proper perspective.

In the household survey, if you work as little as 1 hour a week, even selling trinkets on eBay, you are considered employed.

In the household survey, if you work three part-time jobs, 12 hours each, the BLS considers you a full-time employee.

In the payroll survey, three part-time jobs count as three jobs. The BLS attempts to factor this in, but they do not weed out duplicate Social Security numbers. The potential for double-counting jobs in the payroll survey is large.

Household Survey vs. Payroll Survey

The payroll survey (sometimes called the establishment survey) is the headline jobs number, generally released the first Friday of every month. It is based on employer reporting.

The household survey is a phone survey conducted by the BLS. It measures unemployment and many other factors.

If you work one hour, you are employed. If you don’t have a job and fail to look for one, you are not considered unemployed, rather, you drop out of the labor force.

Looking for Job Openings on Jooble or Monster or in the want ads does not count as “looking for a job”. You need an actual interview or send out a resume.

These distortions artificially lower the unemployment rate, artificially boost full-time employment, and artificially increase the payroll jobs report every month.

Recovery Not Complete

This recovery has been fast, but it was also the deepest on record. Some job losses are permanent.

Leisure and hospitality still has huge job needs.

Multiple Jobs

Divergences

Once again we see a divergence between jobs and employment. Past divergences have resolved in the direction of jobs. One of these sets likely won't. 

  • March employment level: 158,458,000.
  • April employment level: 158,105,000.
  • May employment level: 158,426,000.
  • June employment level: 158,111,000.
  • July employment level: 158,290,000.

That's five months of heading nowhere or down. The employment change since March is -168,000.

Synopsis Since March  

  • Employment -168,000 
  • Jobs +1,680,000

The household numbers are admittedly noisy, but a five month divergence now stands out. 

In expanding economies, discrepancies tend to resolve higher. At turns, discrepancies tend to resolver lower.

I suspect labor turnover and retirements have seriously distorted payrolls and at least some of this strength will be taken away. 

Regardless, I'm calling BS. At least one set of numbers is seriously wrong. 

Expect a Long But Shallow Recession With Minimal Job Losses

Given hiring pressures and boomer retirements, Expect a Long But Shallow Recession With Minimal Job Losses

The stock market is another issue. For discussion, please see Artificial Wealth vs GDP: Why Earnings and the Stock Market Will Get Crushed

While I expect the unemployment rate will not rise much in this recession, it's another thing for the unemployment rate to decline and jobs to rise by millions. 

This post originated at MishTalk.Com

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