Economists skeptical about strong NonFarm payrolls
2023.02.03 14:01
Economists skeptical about strong NonFarm payrolls
By Tiffany Smith
Budrigannews.com – The most recent employment report raises the question of whether the US labor market is as robust as it appears or whether erroneous adjustments are obstructing the process.
In January, employers added 517,000 jobs, exceeding all Bloomberg survey estimates and nearly doubling the advance from the previous month. The Labor Department’s data, which were made public on Friday, revealed that the unemployment rate also unexpectedly fell to 3.4%, the lowest level since 1969.
At the very least, forecasters can agree on this: The Federal Reserve’s most aggressive interest-rate hike campaign in a generation has not adversely affected the jobs market.
However, the government’s annual benchmarking process and an update to seasonal adjustment factors and population controls, which economists warned would make the data difficult to interpret prior to publication, complicated the employment report.
According to Wells Fargo (NYSE:) and others, “Seasonal adjustment factors appear to have flattered the headline as smaller-than-usual post-holiday layoffs bolstered the payrolls numbers.” Sarah House and Michael Pugliese, co-economists, stated in a note.
They said, referring to the Federal Open Market Committee, which decides monetary policy, “We suspect members of the FOMC will take January’s blowout employment report with somewhat of a grain of salt.”
According to Bloomberg Economics:
“If it seems too good to be true, that’s because it is too good to be true.” The gain is primarily caused by seasonal factors and data revisions. However, there is no denying that the labor market is still tight. When formulating policy, the Fed won’t put too much weight on this headline jobs number.
Two surveys – one of households and one of businesses – make up the jobs report. Each was affected by a yearly process of fine-tuning carried out by the Labor Department to provide a more accurate picture of the job market.
The household survey’s population controls, which monitor unemployment, participation, and the employment-to-population ratio, were updated annually in the release. The estimated population and civilian labor force increased by 871,000 and nearly 1 million, respectively, as a result of the adjustment.
The government’s updated seasonal factors may have affected the headline payrolls figure for the establishment survey. Payrolls actually decreased by 2.5 million last month, unadjusted.
In accordance with an update to the North American Industry Classification System, the Labor Department also reclassified approximately 10% of employment into various industries. According to the report, this led to “major revisions” in sectors like retail trade and information as well as “minor revisions” in sectors like manufacturing and financial services.
In addition, the establishment survey’s annual update revealed that job growth was revised higher for the final six months of 2022.
The Labor Department stated in the report that “revisions due to both the NAICS 2022 conversion and the benchmark process affected more historical data than is typical in the annual benchmark process.”
Others are less certain that the revisions significantly contributed. The smallest decrease in unadjusted payrolls for January since 1995 was 2.5 million, which is significant for a month that typically experiences weakness due to layoffs of holiday workers.
We are unable to completely disregard all of these data. Jennifer Lee, senior economist at BMO Capital Markets, stated, “We can’t blame it on the seasonal changes.” When broken down by industry, it’s safe to say that there is total strength.
According to Omair Sharif, president of Inflation Insights LLC, this could be a reflection of labor hoarding, which economists say may be contributing to job market resilience because employers are frantically trying to keep employees they have worked so hard to hire in recent years. He said that the health, leisure, and construction industries showed this most clearly.
In a note, Sharif stated, “I think we can rule out seasonal adjustment and the response rate as possible sources of distortion in the data.” The payrolls data appear to be fairly straightforward to read for the most part.
It is difficult to predict the Fed’s perspective on the data. Other indicators, such as a surge in job openings and historically low unemployment claims, demonstrate that demand for workers is broadly intact and significantly exceeds supply, even though policymakers would probably want to discount the strength of the labor market, which they view as one of the last obstacles to taming inflation.
Ian Shepherdson, Pantheon Macroeconomics’ chief economist, wrote in a note, “It seems reasonable to expect a correction in payroll growth in February, but the labor market is going to look tight when the Fed sits down in March.” The most recent payroll and unemployment data do not change the Fed’s opinion that the labor market is too tight.
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