In a stunning announcement, The Bureau of Labor Statistics reported that the official payroll numbers in 2018 and 2019 were vastly overstated. It turns out that the amount of new jobs created were tremendously inflated and had to be reduced downwards by more than 500,000 jobs. This embarrassing admission raises questions as to the actual strength of the job market, the success of the Trump-initiated tax cuts and how exactly these numbers are calculated.
The U.S. Department of Labor releases the jobs report on a monthly basis. It serves as a gauge as to the financial health and well being of the country. For instance, if there are more people obtaining jobs, then it is deemed good for the economy. Corporations, the government and individuals will make financial and life-critical decisions based upon these numbers, which reflect the direction of the American economy.
The newly revised numbers indicate that over 60% of the downward revisions emanated from the retail, leisure and hospitality sectors. These industries are closely tied to consumer spending. Our economy is highly dependent on individual spending, as it comprises over 70% of the economy. According to the Associated Press, “This was the sharpest downward revision in jobs totals since 2009, when the economy was just starting to emerge from the Great Recession.”
It’s little talked about, but the reported numbers are based on the Current Population Survey, which involves an assessment of about 60,000 households, and the Current Employment Statistics Survey, which canvasses roughly 160,000 employers to determine how many people were hired or fired.
The half-million discrepancy does not surprise us. For those who regularly read our coverage of the job reports, you already know that we’ve been highly suspect of the data. Approaching the numbers as a practical business person and from an outsider’s view (as opposed to being an economist), there are glaring problems with the jobs report.
Len Adams, the founder and CEO of New York-based executive search firm, ACG Resources/Adams Consulting Group, points out, “While the job market looks strong, there are signs that major corporations are preparing for a possible change in the next year or so.” Adams added, “It makes sense that rational, intelligent and forward-thinking managers would ease up somewhat on the hiring.” Hiring managers are thoughtfully considering their open requisitions and biding their time to gather greater clarity on the direction of the job market. Companies are not racing to hire people in many sectors. Yes, there are industries that beg for applicants. However, in other sectors, the interview process takes a three-to-six-month stretch of time to interview and hire a person. Job descriptions have become ridiculously long, demanding more than 20 bullet points that can’t reasonably be met by applicants. The application process on corporate websites are clunky, ridden with glitches and crash midway through completing. Feedback from the company regarding interviews are sparse—if offered at all. Job offers are not made with highly attractive premiums. Employee wages have not substantially increased. These things would not occur if the job market was at record-setting highs. In a hot job market, companies would make it easier and more accessible to apply for a position, expedite the hiring process and pay a large premium to attract top talent. Companies would also lavish existing employees with raises and bonuses to keep them from leaving. There is no hard evidence of this happening on a regular basis.
The reported numbers are merely estimates because they are based on surveys, not actual counts of every single business. That’s an important distinction. The government does not physically knock on the doors of more than 160 million Americans in the labor force and over seven million businesses. Consider how impossible of a task this would be to contact every single employer each and every month and call every American household to find out whether the residents are working or not.
There are numerous examples of older employees being downsized, including IBM and Verizon. It’s been reported that it’s hard for them to secure new jobs. If the job market was at record highs either the companies would keep their older workers or these people would easily find new jobs due to the pent-up demand.
The data doesn’t factor in that jobs are rapidly moving to lower-cost cities and countries. A new job is created when a position is moved from New York City to Raleigh, North Carolina. The NYC person who is earning a large salary loses her job and the young person in North Carolina gets a fraction of the what the other person previously earned.
If the job market was on fire, college-educated professionals from a white-collar background would not be driving Ubers, bringing you lunch or serving you artisan coffee. They would be working in their chosen fields and earning a decent living.
If the government relies upon household surveys, it seems antiquated and completely unreliable. How often do you answer your landline? Do you even have a landline? When was the last time you took the time to answer a phone survey by the government? The survey system seems ripe for messaging the numbers to make things look good.
Many people elect to retire earlier than they would like because of lack of appropriate opportunities available to them.
People who are no longer on unemployment insurance and haven’t found a new job after six months are not included in the data and conveniently disappear off the government’s radar.
The Labor Department uses something called a Birth/Death Model. They assume the amount of jobs created when a new company commences business and the number of jobs lost when a company closes. These is not based on actual data, but on black-box assumptions. This seems highly questionable and ripe for playing with the models to make things look better than they are.
The jobs report casually omits data on the people who have simply given up looking for a job, are underemployed, forced into the gig economy or juggling several low-paying jobs. Colin Jack, the CEO of Valiant Staffing, a recruiting firm that focuses on finding new jobs for military veterans returning to the workforce, says, “The biggest challenge that I have is competing with the gig-economy-type jobs that lure my candidates away.” He added, “If I place a job advertisement, maybe I’ll get two or so responses. It’s a very competitive market.” Jack is referring to the returning veterans who are taking on factory, administrative and other short-to-medium-term consulting assignments primarily in Colorado. This is consistent with reports that indicate a good portion of the so-called “hot” job market is concentrated in certain sectors, while other areas are not seeing the same action.
The jobs report numbers should come under greater scrutiny. Our elected representatives need to look into the manner in which the numbers are calculated to determine if they’re an accurate accounting of the real amount of Americans working or not. If this isn’t investigated, then the American public cannot put its full faith and trust in the veracity of these reports.