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.
Dangerous Methodology
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…
The Real Data
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.
Implications
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.
#jobs #employment #retailjobs #retailtech #economy #USjobs #bls
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3moGreat insight Greg! I never believed the data to begin with and now you have explained why….
Senior Retail/Technology Analyst at Coresight Research
3moGreg Buzek - Thanks for sharing: your article is insightful. It is very disappointing that the weekly job figures are directionally wrong (and also meaningless), however there will always be an appetite for recent data to put in the headlines.
Independent Advisor: Tech, Retail Industry, GTM, Partner/Channel, Exec Coach
3moGreg, I believe the unemployment rate is separate from this and was historically low at between 3.7 to 3.9 through 2023. Check me if I’m wrong. The BED shows that there were around 2 million jobs created in the 4 quarters prior to the Q3 2023 loss you corrected stated at $192k. So it gave back about 20% of its gain. While employment remains historically high. I believe the Fed sees the “softening” as anti-inflationary. The economy cannot sustain such a low level of unemployment without burning too hot. Too much wage competition. The shift of jobs from private to public sector is a trend that I was not tracking, and is insightful. Thanks for your great analysis, as always!
All I can tell you is what I see…and that’s a bit skewed because Miami is booming. And that’s my answer. Miami s booming. I also have friends of various economic strata all around the country and I don’t hear anyone complaining “well, at least I have a job.” Cost of living is a whole other topic, and we could call that political or simple corporate greed. Companies (particularly cpg companies) are charging what the market will bear. They never dropped prices back to pre-pandemic levels. So I don’t know what else to say. It certainly true that Boomers are leaving the job market (coming soon!) and Millennials and Gen Z are pickier, but to get a true picture we’d need a bigger sample than what I see. A restaurant I love expanded its footprint during the pandemic, but couldn’t get enough of a wait staff to open for dining service for 2 months after it was complete. That’s what the owner told me. And it’s my favorite Thai restaurant in Miami. So we dont all live in the same reality. And that’s the big story of America, in my opinion….the bifurcation of wealth depending on a variety of topics including geography, workforce, available types of jobs, etc.
Great analysis Greg.