Why You Should Take the Latest Jobs Report With a Grain of Salt
If you have any skepticism of government narratives at all, you have to question last week’s non-farm payroll report from the Bureau of Labor Statistics. Given the number of layoffs and the general slowing of the economy, the notion that 517,000 jobs were created in January just doesn’t make sense.
Turns out that your skepticism is warranted.
As SchiffGold analyst Tony noted in his overview of the job numbers, perhaps it’s time to take the letter “L” out of BLS.
How can anyone look at the environment and then take such a job report seriously? This is the type of job report you would see at the height of an economic cycle where the economy is firing on all cylinders. The BLS numbers are already hard to take at face value.”
Nevertheless, the media ran with the headline numbers and gushed over the employment report. As Ryan McMaken at the Mises Institute pointed out, the words “wow” and “stunner” were frequently used. But as with so many government numbers, you need to look a little more closely.
A recent article published by MarketWatch did just that and found that there are five significant reasons to think the big January number was an anomaly and not a sign of a roaring economy.
There’s reason to believe that, at least on the payrolls front, the January numbers were a one-off.”
As reported by MarketWatch, economists at Morgan Stanley determined that three factors boosting job growth were likely temporary and give a false impression about the state of the labor market.
- Unusually warm weather
- An end to California’s higher education strike bringing people off the unemployment rolls.
- A very strong upward seasonal adjustment.
The season adjustments are interesting to look at. A lot of businesses release seasonal workers in January after the holiday season. The BLS adjusts for this with season adjustments that “smooth out” the employment data over the course of the year. In effect, the BLS makes up numbers to adjust the data.
According to the Cato Institute, without seasonal adjustment, the 517,000 job gain in seasonally adjusted payrolls turns into an unadjusted 2,505,000 job loss.
The seasonal adjustment may be warranted. Or maybe not. Remember, it’s a made-up number.
Economist Mark Zandi tweeted his skepticism.
Whoa! The BLS jobs report for January was VERY strong. So strong, I don’t believe it. The BLS is likely having measurement issues. Most likely, difficulty seasonally adjusting the data, which is especially important in January. This January was the 5th warmest on record.
— Mark Zandi (@Markzandi) February 3, 2023
Economist Murray Rothbard explained why we should always be wary of government “adjustments” to the data.
The further one gets from the raw data the further one goes from reality, and therefore the more erroneous any concentration upon that figure. Seasonal adjustments in data are not as harmless as they seem, for seasonal patterns, even for such products as fruit and vegetables, are not set in concrete. Seasonal patterns change, and they change in unpredictable ways, and hence seasonal adjustments are likely to add extra distortions to the data.”
There is another factor that few people seem to be talking about. Most of these new jobs are part-time. McMaken points out that since September, month-to-month employment growth in full-time jobs has been negative. Meanwhile, growth in part-time jobs has been positive.
A switch from full-time-driven employment to part-time-driven employment usually indicates that a recession is coming. We saw it happen in 1981, 1990, 2001, 2008, 2020. Now it’s happened again in 2023.”
The fact people are moving from full-time to part-time work, and more people are taking on extra part-time jobs to make ends meet does not scream “strong economy.” In fact, it’s the opposite. This reveals an economy with a rotting foundation.
Finally, MarketWatch highlights a Philadelphia Federal Reserve report called the Quarterly Census of Employment and Wages that casts more doubt on the BLS numbers. In a nutshell, the QCEW estimates that the BLS data overstated the number of jobs created by roughly 1 million jobs in Q2.
Standard Chartered head of North American macro strategy Steve Englander told MarketWatch he found the QCEW data “quite reliable,” and his own analysis found that the headline job numbers may have been overreported by as much as 1.1 million.
The bottom line is you should probably take the headlines generated by the latest non-farm payroll report with a healthy dose of salt.