Counting Jobs

Last week I wrote about the challenges of counting deaths. But surely in economics, we can count better, especially when it comes to something concrete like the number of people working. Right?

Maybe not. If you follow the economic data regularly, you’ll know that once per month, the Bureau of Labor Statistics releases data on the employment situation of the nation’s economy. And if you are familiar with this report, you will probably know that it is based on two separate surveys, one of businesses and one of households. And furthermore, it gives us two separate measures of employment, the number of people working for pay.

Joseph Politano has been tracking the employment situation reports, and he writes that the two measures of employment have “completely diverged since March of [2022], with the establishment survey showing payroll growth of nearly 2.7 million and the household survey showing employment growth of 12,000.” The surveys are tracking the labor market differently, so it’s not surprising that they won’t be exactly the same (they rarely are), but this sort of discrepancy is huge. Even accounting for most of the differences between the surveys, there is still a gap of about 2 million jobs.

Today, the BLS released yet another measure of employment, this one comes from the Business Employment Dynamics series. The BED is not released as quickly as the data in the employment situation report — the BED data released today is for the 2nd quarter of last year. But that’s because this data is much more comprehensive, and it’s actually the same data underlying the employment measure from businesses in the monthly employment report (it comes from unemployment insurance records, which covers most of the workforce).

What did the BED find for the 2nd quarter of 2022? A net loss of 287,000 jobs. The BED is only looking at private-sector jobs, and it is also seasonally adjusted to smooth out normal quarterly fluctuations. If we look back at the monthly data on employment, what did it look like in the 2nd quarter of 2022? Using the seasonally adjusted, private-sector jobs number to match the BED, it showed a gain of 1,045,000 jobs. In other words, we have a discrepancy of 1.3 million jobs in a single quarter. This is huge.

Perhaps some of this could be attributed to different seasonal adjustment factors, but even using the unadjusted data there is still a gap: 3,089,000 jobs added in the monthly payroll survey (private sector only), but only a net gain of 2,432,000 private-sector jobs in the BED data. That discrepancy is smaller, but it is still a difference of over 600,000 jobs. Note here that there was job growth in the second quarter in the BED measure, just not enough job growth that on a seasonally adjusted basis that it showed net growth. Another way to think of this: there is almost always growth in the 2nd quarter, but we expected it to be a bit stronger than this data shows.

If you aren’t confused enough yet, BLS produces yet another measure of employment, called the Quarterly Census of Employment and Wages. Really this is the broadest measure of jobs and is using the same underlying data as the BED and monthly nonfarm jobs in the business survey. But like the BED, it is also released with a significant lag. What does it show? A gain of 2,338,000 jobs in the 2nd quarter of last year (this includes public sector employment too). That number isn’t seasonally adjusted and compares with the CES (monthly nonfarm employment) number of 2,702,000, a discrepancy of 364,000 jobs (note: the CES will later be revised and benchmarked with the QCEW data).

What can we learn from all these different estimates of jobs? And which is right? The short answer to the second question is: they are all right, but measuring different things. The big takeaway is that there was indeed job growth in the 2nd quarter of 2022 (even the household survey shows job growth), but based on more complete data the monthly business survey probably overstated job growth, and it may have actually been pretty weak job growth compared to what we would normally expect in that quarter in the private sector (but of course, we aren’t in normal times).

Is the Bottom Quartile Already in Recession?

I heard on a radio interview that spending by the bottom quartile is way down in 2022, while it is holding up merrily for the upper two quartiles. My mind jumped to the thesis:

“Hmm, the bottom quartile probably (proportionately) felt the benefit of the three COVID stimulus packages more, plus they would have benefited more, proportionately, from the enhanced 2020-2021 unemployment benefits, which (I gathered from anecdotal observations) often paid them more for staying home than they used to receive for working. But…by 2022, all that extra money may be running out.”

I spent some time poking around the internet, trying to find some pre-made figures or tables to support or disprove this thesis. What I found tended to support it, but this is not rigorous data-mining. So, for what it is worth, here are some  charts.

First, about the spending in 2022. This chart indicates that discretionary service spending by the bottom 40% income cohort is indeed down sharply in  2022, and now sits a little lower than a  year ago, while the upper 20% cohort is spending actually more than a year ago.  Spending by the middle 40% trended up in 2H 2021, then back down in 1H 2022, to end about even over the past 12 months:

Discretionary service consumption by income cohort. (I don’t what the units are for the y-axis, but presumably they show the trends). Source: Earnest Research, as of June 30, 2022, as reproduced by Blackrock.

And what about 2020-2021? The next two charts indicate (a) that consumer spending was HIGHER in 2021 that it was pre-COVID for the bottom income quartile, even though (b) their employment in 2021 remained some 20% LOWER than pre-COVID. Looks to me like a lot of spending of stimmie checks was going on in 2021, but (see above) that money has run out in 2022.

Some reader here may have access to a more consistent data set, so I am happy to see this thesis tested further.

Consumer Spending by Income Quartile (Showing higher spending by bottom quartile following stimulus checks and enhanced unemployment payments in 2020-2021)  Source: The Economic Impacts of COVID-19: Evidence from a New Public Database Built Using Private Sector Data, Stepner et al. (2022).

Employment Changes by Wage Quartile ( Showing employment for the bottom quartile in most of 2021 was some 20% lower that pre-COVID)  Source: The Economic Impacts of COVID-19: Evidence from a New Public Database Built Using Private Sector Data, Stepner et al. (2022)   

Is the Labor Market Back?

Last month I asked if travel was back. Air travel has recovered a lot from the depths of the pandemic, but it was still only about 80-85% of pre-pandemic levels.

Labor markets also plummeted during the worst of the pandemic, and have slowly (and sometimes quickly) clawing their way back. But are we back to pre-pandemic levels?

The national unemployment rate is now under 4%, a level which is rarely reached even in the best of times. But there is considerable variation across states.

The latest BLS release of state unemployment data shows that some states are at their historic lows, with one state standing out: Nebraska currently has the lowest unemployment rate a state has ever recorded at 1.7% in December 2021 (the data go back to 1976). Utah is also just below 2% in December — at 1.9% it’s the 2nd lowest in history (after Nebraska, of course).

Of course, all is not well everywhere. California and Nevada have the highest unemployment rates, at around 6.5%. This is well above their pre-pandemic levels of about 4%, and also well above what you would expect during normal times, other than during and immediately following at recession.

So is the labor market back in Nebraska, Utah, and other similar states? Not so fast.

Continue reading

The Recession Is Over! (15 months ago)

Lately there has been lots of both good and bad news about the pandemic and its impact on the economy. But here’s once piece of good news you might have missed: the recession which began in February 2020 ended in April. And not April 2021… it ended in April 2020. At least, that’s according to the NBER Business Cycle Dating Committee, which made the announcement last week.

The 2020 recession of just 2 months is by far the shortest on record. NBER maintains a list of recessions with monthly dates going back to 1854 (there are annual business cycles dates before that, including important modern revisions of the original estimates, but the monthly series starts in 1854). In that timeframe, there have been 7 recessions in the 6-8 month range, but nothing this short. Still, it was mostly definitely a recession, as unemployment briefly spiked to levels not seen since the Great Depression. But only for 2 months. Keep in mind that the first part of the Great Depression last 43 months.

Unemployment Rate, 1948-present

But how can this be? Is the recession really over? There are still about 6-7 million fewer people working than before the pandemic began. Lots of businesses are still hurting. The unemployment rate is still 2 full percentage points above pre-pandemic levels. How in the world can we say the recession ended 15 months ago?

To answer that question, it helps to know what NBER and most macroeconomists mean by a “recession” — essentially, it is used interchangeably with “contraction.” It means the economy, by a broad array of measures (NBER uses about 10 measures), is shrinking — or we might say, going in the wrong direction. The only other option, at least in the NBER chronology, is an expansion — when the economy is going in the right direction.

Does an economic expansion mean that everything is fine the economy?

Continue reading