Surprise: The BLS Admits Another Phony Jobs Report

Mish

Jobs unexpectedly soared this month and the unemployment rate took a big dip. But the BLS admitted another error.

The BLS Employment Report for May shows employment rose by 2.5 million and the unemployment rate fell to 13.3%

Initial Reaction

Both numbers are way better than the consensus. 

The Bloomberg Econoday consensus jobs estimate was -7.725 million and the unemployment rate consensus was -19.8%. 

My unemployment rate estimate was -18.5%. I did not estimate jobs, fearing another fiasco like this.

BLS Admits Another Error

In the household survey, individuals are classified as employed, unemployed, or not in the labor force based on their answers to a series of questions about their activities during the survey reference week (May 10th through May 16th). Workers who indicate they were not working during the entire survey reference week and expect to be recalled to their jobs should be classified as unemployed on temporary layoff.

In  May, a large number of persons were classified as unemployed on temporary layoff. However, there was also a large number of workers who were classified as employed but absent from work. As was the case in March and April, household survey interviewers were instructed to classify employed persons absent from work due to coronavirus-related business closures as unemployed on temporary layoff.

However, it is apparent that not all such workers were so classified. BLS and the Census Bureau are investigating why this misclassification error continues to occur and are taking additional steps to address the issue.

If the workers who were recorded as employed but absent from work due to "other reasons" (over and above the number absent for other reasons in a typical May) had been classified as unemployed on temporary layoff, the overall unemployment rate would have been about 3 percentage points higher than reported (on a not seasonally adjusted basis).

However, 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. 

Add 3 percentage to unemployment rate for a better estimate. 

Job Revisions

The change in total nonfarm payroll employment for March was revised down by 492,000,  from -881,000 to -1.4 million, and the change for April was revised down by 150,000, from -20.5 million to -20.7 million. With these revisions, employment in March and  April combined was 642,000 lower than previously reported.

BLS Jobs Statistics at a Glance

  • Nonfarm Payroll: +2,500,000 - Establishment Survey
  • Employment: +3.839,000 - Household Survey
  • Unemployment: -2,093,000 - Household Survey
  • Involuntary Part-Time Work: -254,000 - Household Survey
  • Voluntary Part-Time Work: +2,039,000 - Household Survey
  • Baseline Unemployment Rate: -1.4 to 13.3% - Household Survey
  • U-6 unemployment: -1.6 to 21.2% - Household Survey
  • Civilian Non-institutional Population: +151,000
  • Civilian Labor Force: +1,746,000 - Household Survey
  • Not in Labor Force: -1,595,000 - Household Survey
  • Participation Rate: +0.6 to 60.8% - Household Survey

BLS Employment Report Statement

Total nonfarm payroll employment fell by 20.5 million in April, and the unemployment rate rose to 14.7 percent, the U.S. Bureau of Labor Statistics reported today. The changes in these measures reflect the effects of the coronavirus (COVID-19) pandemic and efforts to contain it. Employment fell sharply in all major industry sectors, with particularly heavy job losses in leisure and hospitality.

Unemployment Rate – Seasonally Adjusted

Civilian Unemployment Rate Seasonally Adjusted

The above Unemployment Rate Chart is from the BLS. Click on the link for an interactive chart.

Month-Over Month Changes by Job Type

Nonfarm 2020-06C

Hours and Wages

Average weekly hours of all private employees rose 0.5 hours to 34.7 hours. Average weekly hours of all private service-providing employees rose 0.4 hours to 33.8 hours. Average weekly hours of manufacturers rose 0.8 hours to at 38.9 hours.

Average Hourly Earnings of All Nonfarm Workers fell $0.29 to $29.75 . These numbers are so distorted I will skip percentages this month.

Average hourly earnings of Production and Supervisory Workers fell $0.14 to $25.00. These numbers are so distorted I will skip percentages this month.

Year-Over-Year Wage Growth

  • All Private Nonfarm rose from $27.87 to $29.75.
  • Production and supervisory rose from $23.42 to $25.00.

These numbers are totally distorted because more higher-paid workers kept their jobs than lower-paid employees.

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. Should anything interesting arise in the Birth/Death numbers, I will comment further.

This was my comment last month, repeated below.

BLS Special Statement on the Birth-Death Model

The BLS changed the estimation method used in the establishment survey for April. Business births and deaths cannot be adequately captured by the establishment survey as they occur. Therefore, the establishment survey estimates use a model to account for the relatively stable net employment change generated by business births and deaths. Due to the impact of the COVID-19 pandemic, the relationship between the two was no longer stable in April. Therefore, the establishment survey made changes to the birth-death model. These changes include using a portion of business deaths reported by establishments in the estimation process. These business deaths are normally excluded from the estimation process. BLS also added a regression variable to the model for forecasting net business births and deaths. The regression variable added more recent information to the model, which typically relies on inputs only available on a lag of several months. The establishment survey also uses outlier detection as a usual part of the seasonal adjustment process. All outliers for seasonal adjustment are identified on a monthly basis in the establishment survey seasonal adjustment documentation.

The Birth-Death model is officially garbage, much more than normal, but we likely will not find how distorted this is until the annual revisions next year.

Table 15 BLS Alternative Measures of Unemployment

Nonfarm 2020-06A

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

Notice I said “better” approximation not to be confused with “good” approximation.

The official unemployment rate is 13.3%. 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 21.2%. 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.

Final Thoughts

Last month I stated "This was the most distorted BLS report in history."

Given the BLS repeated the same error, this report was worse.

Mish

Comments (37)
No. 1-23
jivefive99
jivefive99

Mr Trump and the grifters and ner-do-wells that surround him are going to jail if he doesnt get re-elected. They have pissed off the democrats SO much that he will not be allowed to escape. And since there is no advantage using real numbers to diagnose the economy, his political appointees, who have the last word in EVERY Federal department and agency (Department of Labor, Commerce and Treasury is particular), have been told to sweeten any number that comes out, in an election year, with him finally behind in the polls. These arent gasoline prices that are real prices you can survey and average. These are all made up numbers to win an election.

AussiePete
AussiePete

Speaking of "selling trinkets on ebay" - Years ago I bought a bunch of new $100 Trillion Zimbabwe banknotes on ebay for next to nothing as a novelty - (I had the notion that it would be fun to put them in buskers' hats - in the end I thought it would be a bit cruel, as they have a resemblance to Australia's $100 notes) I see that these things are now selling on ebay for up to US$75 each!

tokidoki
tokidoki

Rioting/demonstrating is now a job. That's what the BLS is saying. If replacing broken windows is work, then breaking it should be considered one as well.

345K new businesses created supposedly? Doing what?

awc13
awc13

greatest jobs report ever!

Tony Bennett
Tony Bennett

Well, that was interesting.

Continuing claims for UE for reference week in April (ending 18th) ... 17,992,000

Continuing claims for UE for reference week in May (ending 16th) ... 21,052,000

=

+2.5 million ?!?!

CaliforniaStan
CaliforniaStan

" if you work as little as 1 hour a week, even selling trinkets on eBay, " You always use this example. May I humbly suggest you change it to "even trying to sell trinkets on eBay." I suspect there is no need to actually make any sale.

Tony Bennett
Tony Bennett

My initial thought?

Uh, what about that near $trillion stimulus package scheduled for debate / vote in July?

And not to mention bonds ... and housing?

cnbc:

Rates have been rising this week, after sitting around a record low for the last two weeks. Friday, the average mortgage shopper may see rates on the 30-year fixed as much as a quarter point higher, according to Matthew Graham, COO of Mortgage News Daily, which runs daily averages from lenders.

For those with top-tier credit and financials, they may only see an eighth of a point increase, but for those with lower scores and down payments, the jump could be as much as 0.375%.

“It’s going to be ugly,” said Graham.

njbr
njbr

Leisure and hospitality?

Really?

Woodturner
Woodturner

Hey cool, I cleaned the kitchen last night, I must be employed then right? Even though I’m 67 and was retired I thought. How is it though that the stock market swallows this bs hook line and sinker every time? If fishing were that easy I’d limit out every time. Even fish appear smarter.

Mish
Mish

Editor

@bayleaf "So let me get this straight. You predicted a worsening employment environment and when it actually improves, you say the report is fake. Is that right?"

Let me get this straight. The BLS admits for the second month in a row that the report is wrong (6 PP last month, 3 this month) and the number is not fake?

Get real.

Six000mileyear
Six000mileyear

2.5 Million new jobs certainly doesn't compare to the 21 Million continuing claims. There are more layoffs in the wings at large corporations. Those jobs pay much better than at small businesses. The stock market is getting even farther ahead of itself than before COVID hit.

Lance Manly
Lance Manly

So what about the Paycheck Protection Program, it is easy to see how people in the week of April 12th could have been hired back by the week of May 12th under the program. So what is it, 500 B being thrown at the program?

njbr
njbr

....During a 45-minute, stream-of-consciousness, often rambling speech, Trump all but declared victory in his administration’s response to both the pandemic and protests over the death of George Floyd, calling the jobs report a “tremendous tribute to equality.”

The president said he hoped Floyd, an unarmed black man who was killed by police in Minneapolis last week, would be looking down from heaven and approve of the job he is doing on the economy.

“Hopefully George is looking down right now and saying, ‘This is a great thing that’s happening for our country,’” Trump said. “This is a great day for him. It’s a great day for everybody.”...

Now try and get the next leg of stimulus passed with the majority of those unemployed being still unemployed.

Maximus_Minimus
Maximus_Minimus

So BLS puts out a hopey dopey number which is as solid as a sand castle, but the stawk market goes up by solid 1000 points. I thought the algos have been reprogrammed for pandemic and riots, or do things deteriorate too fast?

TwisterTim
TwisterTim

I am wondering how the Paycheck Protection Program influences the BLS report?
Did the PPP influence the record "jobs" created since it took a few weeks to roll it out.

Casual_Observer
Casual_Observer

PPP made certain layoffs dont have to happen until September. Heard this from an airline pilot who is furloughed but still being paid as the airlines took bailout money. There will probably be a massive layoff come September. Also who is in charge at the BLS?

anoop
anoop

I-shaped recovery, even faster than a V-shaped one!

Sechel
Sechel

It's an improvement but jobs were part time, minorities didn't benefit and wages went down

The unemployment rate for blacks increased one-tenth of a percentage point to 16.8%. In contrast, the jobless rate for whites fell to 12.4% from 14.2% in April.

Even with May’s rebound, the hole is deep. Part-time workers accounted for two-fifths of the increase in employment. Payrolls are nearly 20 million below their pre-COVID-19 level. The unemployment rate has risen 9.8 percentage points and the number of unemployed is up 15.2 million since February.

Employment in May was boosted by restaurants and bars, which added 1.4 million jobs after losing 6 million jobs in April and March. But payrolls continued to decline in the accommodation industry in May, with another 148,000 jobs lost.

Hiring in the construction industry increased by 464,000 jobs last month, recouping about half of April’s decline. There were also gains in employment in education and health services, retail trade, manufacturing, professional and business services, financial activities and wholesale trade.

But government payrolls dropped by 585,000 in May, with the declines in state and local governments, whose budgets have been crushed in the fight against COVID-19. There were more job losses in the information, mining, transportation and warehousing industries.

The labor force participation rate, the proportion of working-age Americans who have a job or are looking for one, rose to 60.8% last month from 60.2% in April, which was the lowest rate since January 1973. The employment-to-population ratio, viewed as a measure of an economy’s ability to create employment, rose to 52.8% in May from a record low 51.3% in April.

With the rebound in lower-wage industry jobs, average hourly earnings fell 1.0% after shooting up 4.7% in April. That lowered the annual increase in wages to 6.7% in May from 8.0% in April. The workweek averaged 34.7 hours, up from 34.2 hours in April.

thimk
thimk

fuzzy numbers maybe skewed from government programs. Can one say at this junction that a bottom has set in ? private sector rebounds slightly while the public sector headwind will probably continue to shed employment.

AmadeusMozart
AmadeusMozart

Dead cat bounce.

Any increase (if true) in employed numbers is purely due to people forced back to work due to unable to feed themselves. Either go back to work, with the associated risk of catching the pandemic, or starve.

Wait two months and see if the death rate has gone through the roof because of the protests giving the pandemic a large boost.

( Sweden still has no herd immunity and now admits they made a mistake - the USA will go the same way. )

marg54
marg54

From Politico:
When the monthly Bureau of Labor Statistics jobs numbers were released this morning, there was a big surprise. Instead of an expected 20 percent unemployment rate for May, the rate went down to 13.3 percent. The U.S. economy gained 2.5 million jobs. Nightly’s Myah Ward asked economists why the estimates were so wrong. And how did unemployment go down when millions of new unemployment claims are filed every week?

“Right now there are huge gross flows in jobs — many millions of people are still losing their jobs, and many millions more are gaining them back. The unemployment insurance claims only report the total number of people losing their jobs, and they also have quality issues in terms of people who make multiple applications or who stay on UI even after getting a new job. We don’t have any good measure of how many people in gross terms are getting jobs. That makes it even harder to predict the net jobs number reported by the BLS. Today's number, however, was only surprising in its timing. I expected millions of jobs to be added in late May. It is only happening about two weeks earlier than I would have expected.” — Jason Furman, economic policy professor at Harvard and chair of the Council of Economic Advisers under President Barack Obama from 2013 to 2017

“The jobs number, the unemployment rate and the claims each come from their own universe. And while they overlap some, they will never line up exactly. And we’re used to this with jobs and the unemployment rate because the jobs number is calculated by talking to employers and asking how many employees they have. And the employment rate is calculated by going to households and asking them if they have a job or not. We now have this third category: the new claims for unemployment insurance that people are paying attention to. And there we have an additional problem because we are now allowing people who never before could get unemployment insurance to claim it. And importantly, among them are self-employed people and independent contractors. They will never show up as jobs. And so you can have a lot of UI claims from self-employed people without affecting the jobs number at all. And so there has to be some of that going on. And then the other piece of complication is: To be counted as unemployed in the jobs report, you have to say, I don’t have a job but I’m looking for one. But for unemployment insurance, we specifically said when we passed the CARES Act, you can get this, even if you don’t look for a job. So there are a lot of people who would normally say, ‘Oh yeah, I’m out of work but I’m looking, I promise,’ who are now just saying, ‘Nah, I'm not looking,’ and they count as out of the labor force.” — Douglas Holtz-Eakin, president of the American Action Forum and chief economist of the Council of Economic Advisers under President George W. Bush from 2001 to 2002

“I would argue that the unemployment rate did hit 20 percent, because the all-in unemployment rate was 21.2 percent, and that includes people that are unemployed, part-time employed for economic reasons or dropped out of the labor force. And so while that’s not the headline figure, if you ask me, the unemployment rate is at 20 percent.” — Ali Wolf, chief economist at Meyers Research, a real-estate data and advisory firm

From Politico: “What this says to me is that our normal models, about what data to take into account to estimate job losses, were really off right now. I expected the official unemployment rate to rise for sure. But if you take into account all the people who are out of work as a result of the virus, it is almost 20 percent. They are misclassifying some workers who should be being counted as temporarily unemployed, but they are instead counting them as employed, but not at work. That’s 4.9 million workers. And if you just added that in, the unemployment rate would have been 16.4 percent.” — Heidi Shierholz, senior economist and director of policy at The Economic Policy Institute and former chief economist at the Department of Labor under Obama from 2014 to 2017

MATHGAME
MATHGAME

For those who have been praising Sweden's COVID-19 approach ...

https:// www. google. com/search?q=Tegnell+admits

Sechel
Sechel

ERROR? WHAT?

When the U.S. government’s official jobs report for May came out on Friday, it included a note at the bottom saying there had been a major “error” indicating that the unemployment rate likely should be higher than the widely reported 13.3 percent rate.
The special note said that if this “misclassification error” had not occurred, the “overall unemployment rate would have been about 3 percentage points higher than reported,” meaning the unemployment rate would be about 16.3 percent for May. But that would still be an improvement from an unemployment rate of about 19.7 percent for April, applying the same standards.
The Bureau of Labor Statistics, the agency that puts out the monthly jobs reports, said it was working to fix the problem.

“BLS and the Census Bureau are investigating why this misclassification error continues to occur and are taking additional steps to address the issue,” said a note at the bottom of the Bureau of Labor Statistics report.