Multiple Factors Turn a Weak Employment Report Strong

SchiffGold US Debt Employment

Birth Death model and Adjustments boost job numbers


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Affiliation

Exploring Finance

 

Published

May 8, 2023

DOI


This article first appeared on SchiffGold.

The BLS reported that 256k jobs were added in April with major revisions down in previous months. The Household Survey reported only 139k jobs in April, the lowest amount since November last year.

Oct 2021Jan 2022Apr 2022Jul 2022Oct 2022Jan 2023Apr 2023−1M−0.5M00.5M1M−300.0%−200.0%−100.0%0.0%100.0%200.0%300.0%
Household SurveyBLS Headline ReportHH as a % of HeadlineMonthly View of BLS Report vs Household SurveyChange in EmploymentHH Survey % of Headline Report

Figure 1: Primary Report vs Household Survey - Monthly

Despite the smaller figure in April, the Household Survey is actually exceeding the Headline Report by the largest margin ever YTD. As of April, total jobs as reported by the Household Survey is 57% greater than the Headline Report. The next largest year was in 2018, when the Household Survey was greater by 27.5%.

2010201220142016201820202022−5M05M−150.0%−100.0%−50.0%0.0%50.0%100.0%150.0%
Household SurveyBLS Headline ReportOI percentAnnual View of BLS Report vs Household SurveyChange in EmploymentHH Survey % of Headline Report

Figure 2: Primary Report vs Household Survey - Annual

The BLS also publishes the data behind their Birth/Death assumptions. These are the jobs that the BLS assumes based on companies starting or closing. While the data is not seasonally adjusted, it directly impacts the Headline Report. The chart below shows the impact of Birth/Death jobs on the total raw number for the last several months.

April had Birth/Deaths responsible for 42.4% of total jobs. This is the highest relative figure going back to July 2020 when Birth/Deaths represented -95%% of total jobs, mostly reversing a negative number. Ironically, it was also July 2020 when the economy was in a deep recession and most likely not opening new businesses. The current environment is probably similar. With business cutting back on spending and financial conditions tightening rapidly, it seems unlikely the economy is seeing a surge in new business fueling a booming job market.

May 2022Jul 2022Sep 2022Nov 2022Jan 2023Mar 2023−2M−1M01M2M−100.0%−50.0%0.0%50.0%100.0%
Birth/DeathsBLS Unadjusted Headline ReportOI percentAnnual View of BLS Report with Birth Death AssumptionsChange in EmploymentBirth/Death Assumptions % of Headline Report1M0.8M0.9M0.4M0.5M1.2M0.6M1.1M0.5M0.9M-0.3M-0.3M-2.5M

Figure 3: Primary Unadjusted Report With Birth Death Assumptions - Monthly

YTD the economy has lost 388k jobs, but the Birth/Death assumptions have created 381k jobs. Essentially the Birth/Death model has negated all the job losses for the year so far.

20142016201820202022−10M−5M05M10M−100.0%−50.0%0.0%50.0%100.0%
Birth/DeathsBLS Headline ReportOI percentAnnual View of BLS Report with Birth Death AssumptionsChange in EmploymentBirth/Death % of Report xBirth/Death

Figure 4: Primary Unadjusted Report With Birth Death Assumptions - Annual

Digging Into the Report

The 253k jobs surprised to the upside and brought the unemployment rate down to 3.4%.

Oct 2021Jan 2022Apr 2022Jul 2022Oct 2022Jan 2023Apr 202300.2M0.4M0.6M0.8M3.4%3.6%3.8%4.0%4.2%4.4%
ConstructionEducation HealthGovernmentLeisure HospitalityManufacturingOtherProf BusinessTrade Trans UtilsUnemployment RateUS Employment Change by SectorChange in EmploymentUnemployment Rate781614569364904414254364370568352350324290239472248165253

Figure 5: Change by sector

One component driving the report higher was an increase in the number of people who have two full time jobs. This increased by 30k in April, responsible for more than 10% of the new jobs added.

20142016201820202022200k250k300k350k400k450k
US Employment: Multiple Full-time Job HoldersNumber of People

Figure 6: Multiple Full Time Employees

Another data point to consider is the adjustment made to the raw numbers. April is typically a strong month that gets revised down by the BLS seasonal adjustments. Interestingly, this year saw the smallest downward adjustment for any April going back to at least 2010. This means that the BLS model adjustments further helped pad the April figure.

2010201220142016201820202022−1M−0.5M00.5M1M
Adjusted EmploymentUnadjusted EmploymentTotal AdjustmentApril Historical Adjustment ReviewChange in Employment

Figure 7: YoY Adjusted vs Non-Adjusted

Breaking Down the Adjusted Numbers

Despite the unexpectedly strong report, 6 of the 8 employment categories are below the 12-month trend. Only Professional Business and Other saw gains that are greater than the historical trend.

ConstructionEducation HealthGovernmentLeisure HospitalityManufacturingOtherProf BusinessTrade Trans Utils020k40k60k80k
Current Month12 Month Avg ChangeUS Employment TrendChange in Employment

Figure 8: Current vs TTM

The table below shows a detailed breakdown of the numbers.

Key takeaways:

Another surprise is the increase in tech workers, despite thousands of layoffs by the tech sector at large. Somehow the government is still able to find jobs created within the information category.

Revisions

The biggest red flag of this report is the prior months revisions. From January to March, the total jobs were overestimated by 179k jobs. Considering most reports are in the 200k range, the revisions down over the last three months basically negated an entire average month of hiring. How can the BLS be getting the data so wrong?

Historical Perspective

The chart below shows data going back to 1955. As shown, the economy is currently “enjoying” its lowest unemployment rate on record. This is quite hard to believe given the current economic environment and job losses that have been announced and implemented.

1960197019801990200020102020050M100M150M4.0%6.0%8.0%10.0%12.0%14.0%
ConstructionEducation HealthGovernmentLeisure HospitalityManufacturingOtherProf BusinessTrade Trans UtilsUnemployment RateUS Total Employment by SectorChange in EmploymentUnemployment Rate

Figure 9: Historical Labor Market

The labor force participation rate has reached a post pandemic high of 62.6% but sits below the 63.3% in Feb 2020 and well below the 66% from before the Financial Crisis.

19601970198019902000201020200.0%20.0%40.0%60.0%80.0%100.0%58.0%60.0%62.0%64.0%66.0%
ConstructionEducation HealthGovernmentLeisure HospitalityManufacturingOtherProf BusinessTrade Trans UtilsLabor Force Part.US Relative Employment by SectorDistribution of EmploymentLabor Force Participation

Figure 10: Labor Market Distribution

Wrapping Up

The BLS continues to issue jobs reports that defy reality and expectations. In fact, this jobs report broke a record as having been the 13th consecutive job report where the market underestimated the numbers. Typically, market expectations alternate between above and below the report, but for 13 months in a row, market expectations have been below the official report.

Furthermore, the banking sector is clearly still under strain and more companies continue to announce layoffs. This jobs report does not jive with the broader economic picture.

There are four factors that turned this mediocre report into a good report:

These four factors suggest the BLS numbers are not accurately reflecting the labor market and things are much weaker than they appear. The Fed is pointing to the job numbers for full justification of their tight monetary policy. Perhaps if the data were more accurate, they would feel less confident about the labor market and economy. It might also wake them up to the fact they have already driven the economy over a cliff.

Since the Fed wants to keep their head in the sand, they will plow away until more things break. At that point, the pivot will be much harder than anyone anticipates. That is also the point at which precious metals will blast off. Given how close gold is to new all-time highs, there are certainly people who see this coming.


Data Source: https://fred.stlouisfed.org/series/PAYEMS and also series CIVPART

Data Updated: Monthly on first Friday of the month

Last Updated: Apr 2023

Interactive charts and graphs can always be found on the Exploring Finance dashboard: https://exploringfinance.shinyapps.io/USDebt/