The Job Market is Great, Right? Not So Fast My Friend!

You watch the news, read the reports, and the job picture is rosy… couldn’t be better. But that doesn’t jive with the reality that we all live in. What gives? Is it partisanship? Doubtful…could be, but doubtful.

Every month the BLS does a couple of surveys. The Employment Situation Reports are derived from two surveys: the Current Employment Statistics (CES) survey and the Current Population Survey (CPS). The CES, which informs most of the job growth figures, samples approximately 145,000 businesses and government agencies, representing around 697,000 individual worksites. Then this data is extrapolated across the entire economy. The problem? It is highly biased by an overabundance of government agencies as a sample, and at best represents just under 7% of the actual number of establishments. Then this is extrapolated to the other 93% of the market and thus reported as gospel by all the news outlets. This is extremely dangerous and that is why the headline numbers have been corrected down for 11 of the last 12 months over time. And it is incredibly inaccurate.

To compare this to how we would do research. At IHL, we do surveys of purchase intention from retailers. Often our sample sizes will represent 20-30% of the total market. Pretty good compared to the government numbers here. If we look at purchase intention of self-checkout or POS and get a number, we report that as a survey and how many people that respond. We have found that the overall market change is half or less of that when we forecast real units (and check from real suppliers). If we report this as the true market in units and dollars and our clients act on that, they could make some huge investment mistakes. So, we must be very careful in how we report and say things. It is good for giving direction, but not degree.

When it comes to the jobs report, this initial monthly report methodology is ok and decent in normal times. These are not normal times. Our government invested over $5 trillion into the economy in pandemic aid, more than $800b more than we spent on WWII. Much of that aid went to government infrastructure projects. Since the government agencies are grossly overweighted in the sample, the jobs market gets reported as really bullish and grossly overstated…

On the other hand, the Business Employment Dynamics (BED) Report, which is based on the Quarterly Census of Employment and Wages (QCEW), covers a vast landscape of over 10 million establishments, encapsulating 98% of U.S. employment under unemployment insurance systems. Now THAT is a sample.

The BED’s expansive coverage provides a comprehensive view of job creation and loss at the establishment level, detailing the openings, expansions, closings, and contractions of establishments. In contrast, the CES, despite its timeliness, relies on a smaller and less comprehensive sample, which can introduce significant volatility and potential bias in its estimates. The problem with the BED is it takes 6 months to put together and the last reported quarter was September of 2023.

But here is the rub. The quick and fast employment summary report (the one reported on the news) shows a net gain of +849,000 jobs in q3 of 2023. The far more accurate BED report, a net loss of -192,000. In other words, the difference between the two reports was – 1,041,000 jobs. We didn’t increase jobs, we decreased jobs and the headlines reported were off over 1 million jobs.

The preference of the press for the Employment Situation Reports over the BED reports can be attributed to the former’s recency and simplicity. Monthly reports with fresh data are more appealing for news cycles and easier for the general public to digest. However, it is simply no longer accurate due to the pandemic aid and government spending like a drunken sailor (both sides guilty). We simply have a system of research that was once somewhat accurate that has been blown up by too much government spending and a sample overweighted with government projects.

The implications of these reporting differences are profound. For policymakers, relying on the more volatile monthly data can lead to premature or misguided economic decisions. For retailers and tech companies, basing strategic decisions on the headline employment figures could lead to misaligned resource allocation.

We can wish for the BED report accuracy in a quicker fashion. We can wish for the media to be more cautious about what they report. But we must be realists. And this is why your gut is telling you that what is getting reported for the jobs market is just simply wrong…that’s because it is.