Jobs Report Much Better Than Expected, But Is It Believable?

Mish

Jobs expanded by 1.4 million and the unemployment rate fell to a much better than expected 8.4%.

The BLS Employment Report for July shows employment rose by 1.4 million in August following a gain of 1.8 million in July, 4.8 million in June, and 2.7 million in May. 

BLS Jobs Statistics at a Glance

  • Nonfarm Payroll: +1,371,000 to 140,914,000 - Establishment Survey
  • Employment: +3,756,000 to 147,228,000- Household Survey
  • Unemployment: -2,788,000 to 13,550,000- Household Survey
  • Baseline Unemployment Rate: -1.7 to 8.4% - Household Survey
  • U-6 unemployment: -2.3 to 14.2% - Household Survey
  • Civilian Non-institutional Population: +185,000 to 260,558,000
  • Civilian Labor Force: +968,000 to 160,838,000 - Household Survey
  • Not in Labor Force: -783,000 to 99,720,00 - Household Survey
  • Participation Rate: +0.3 to 61.7% - Household Survey

Nonfarm Payroll

Nonfarm Payrolls 2020-08

Initial Reaction

The Bloomberg Econoday consensus jobs estimate was +1.4 million right on the nose.

The Bloomberg unemployment rate consensus was 9.8%, missing by a mile. I was much closer at 9.1% but still not close. 

For discussion, please see Where is the US Unemployment Rate Headed?

The BLS said that errors that plagued the household survey since March was not as bad this month.

BLS Error Rate

 For March through July, BLS published an estimate of what the unemployment rate would have been had misclassified workers been included. Repeating this same approach, the overall August unemployment rate would have been 0.7 percentage point higher than reported.

However, this represents the upper bound of our estimate of misclassification and probably overstates the size of the misclassification error.  

According to usual practice, the data from the household survey are accepted as recorded. To maintain data integrity, no ad hoc actions are taken to reclassify survey responses.

I question the accuracy of the BLS assertion that 0.7% is the high end of their error rate. 

Job Revisions

  • The change in total nonfarm payroll employment for June was revised down by 10,000, from +4,791,000 to +4,781,000. 
  • The change for July was revised down by 29,000, from +1,763,000 to +1,734,000. 
  • With these revisions, employment in June and July combined was 39,000 less than previously reported. 

Part-Time Jobs

Part-Time Reporting Silliness

  • The net of voluntary vs involuntary part-time work is -33,000.
  • Total part-time work rose by 991,000

Don't try to make sense of those numbers as they never add up. I list them as reported.

Unemployment Rate – Seasonally Adjusted

Jobs 2020-08 Unemployment Rate

Hours and Wages

Average weekly hours of all private employees rose 0.1 hours to 34.6 hours. Average weekly hours of all private service-providing employees rose 0.1 hours to 33.6 hours. Average weekly hours of manufacturers rose 0.3 hours to at 40 hours.

Average Hourly Earnings of All Nonfarm Workers rose $0.09 to $29.47.

Year-over-year, wages rose from $28.16 to $29.47. That's a gain of 4.7%.

The month-to-month and especially year-over-year gains are very distorted because more higher-paid workers kept their jobs than lower-paid employees.

Average hourly earnings of Production and Supervisory Workers rose $0.18 to $24.81.

Year-over-year, wages rose from $23.64 to $24.81. That's a gain of 4.9%.

For a discussion of income distribution, please see What’s “Really” Behind Gross Inequalities In Income Distribution?

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.

BLS Covid-19 Statement on the Birth-Death Model

The widespread disruption to labor markets due to the COVID-19 pandemic and the potential impact to the birth-death model have prompted BLS to both revisit research conducted in the aftermath of the Great Recession (2008-2009) and incorporate new ideas to account for changes in the number of business openings and closings. Two areas of research have been implemented to improve the accuracy of our birth-death model in the CES estimates. These adjustments will better reflect the net effect of the contribution of business births and deaths to the estimates. These two methodological changes are the following:

1: A portion of both reported zeros and returns from zero in the current month from the sample were used in estimation to better account for the fact that business births and deaths will not offset.

2: Current sample growth rates were included in the net birth-death forecasting model to better account for the changing relationships between business openings and closings.

BLS will determine on a monthly basis if the adjusted birth-death model described here continues to be necessary. We will disclose these changes each month in the Employment Situation news release. All months in the tables of net birth-death forecasts on this page include footnotes for any month in which a regressor was used to supplement the forecasts.

The Birth-Death model is essentially garbage but we likely will not find how distorted this is until the annual revisions next year.

Table 15 BLS Alternative Measures of Unemployment

Jobs 2020-08 Household

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

The official unemployment rate is 8.4%. 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 14.2%. 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. The rest is disability fraud, forced retirement, discouraged workers, and kids moving back home because they cannot find a job.

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 jobs on Monster 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 Will Take Years

The improvement is welcome but the surge in jobs recovery has slowed. Huge headwinds remain. 

Note that The Fed Promotes a Quickening that Takes Many Years

The economy has added about 10.6 million jobs since the April lows.

However, jobs remain 11.5 million jobs below the February 2020 peak. Millions of those jobs will not return. 

Those that do return will take many months.

Report Believable?

Believability of this report is in the eyes of the beholder. I will have more on report discrepancies coming up in a bit.

Mish

Comments (15)
No. 1-12
Zardoz
Zardoz

As believable as the new CDC or Post Office

Tony Bennett
Tony Bennett

"Believability of this report is in the eyes of the beholder."

...

Sure ... but THIS is what Congress has been waiting on before bare knuckles over next stimulus.

A favorable report (along with others this week) favors WH / Senate over Pelosi.

I expect next stimulus will be in the $1.25 trillion to $1.5 trillion range ... and within next 2 weeks.

Augustthegreat
Augustthegreat

You can get almost whatever number you want by playing with the parameters in the model! This is really great!

Tony Bennett
Tony Bennett

Big miss on expected gain in private payroll.

Bam_Man
Bam_Man

238,000 temporary census workers hired in August.
Talk about "putting lipstick on a pig"!

AWC
AWC

Can’t help but wonder, if obsessively analyzing all these bureaucratically produced numbers isn’t akin to standing in the engine room of the Titanic, waist deep in water, studying the engineering details of the propulsion system?

Rocky Raccoon
Rocky Raccoon

If Trump believes the economy is roaring and jobs are plentiful again, why does he continue to centralize more power to the executive branch with more executive orders extending unemployment benefits, the rent moratorium, etc.

Trump's actions aren't consistent with the news he pushes.

Casual_Observer
Casual_Observer

The numbers are always skewed. U-6 is a better measure.

Casual_Observer
Casual_Observer

By the way I love how your blog post on BLS unemployment is effectively a copy and paste for the last 20 years. Nothing fundamentally has changed since the 2001 recession when it comes to unemployment. Every recession more people go uncounted. One could make the argument that many now own small businesses but if you took into account how many small businesses are going under and owners cant file for unemployment the unemployment rate would be higher still.

lol
lol

I would shudder to think what the real unemployment rate for the last dozen years is! It would rival El salvador or Venuzuela.

Jojo
Jojo

The "trumped up" [lol] numbers don't mean anything. The real story is that if the home working trend strongly continues into 2021, it is going to decimate a huge number of service workers and business, not to mention the commercial real estate business. Good NYT story here:

The Service Economy Meltdown
As companies reconsider their long-term need to have employees on site, low-wage workers depending on office-based businesses stand to lose the most.
Sept. 4, 2020

see
see

No.