Jobs Report Breakdown: Back to Life, Back to Reality
January 1, 2023
5 min read
Finally, October's Jobs Report reflects a more realistic view of what’s actually happening in the job market. The softer headline number of 150,000 job creations in the Business Survey would have been much worse if not for the faulty Birth/Death Model, which attributed 412,000 jobs. Without this, there would have been a loss of 262,000 jobs.
Let’s take a deeper look at the Birth/Death Model. With about 168 million people in the labor force, it’s clearly a herculean effort to try and net how many jobs were gained or lost in the previous month, so there is a lot of modeling that must be done. One portion of the modeling is the aforementioned Birth/Death Model. This attempts to calculate how many businesses were newly created (birth) vs those that had closed (death) during the month. The model then tries to approximate how many workers would have been associated with those businesses. But this number can grossly overstate or understate what is happening in the real world, especially during periods of inflection in the marketplace.
In this morning’s report for October, the Birth/Death Model component showed 130,000 job gains in the category of Professional and Business Services. However, in the ADP report for the same period, we see that this segment lost 10,000 jobs (see chart below). It should be noted that the survey of large businesses within the BLS report did indicate contraction in this sector, but between the survey of businesses and the Birth/Death modeling, the BLS still showed a significant gain in this category.
Next, let’s look at revisions. The market trades wildly on the headline number, but because revisions are yesterday’s news, they have less of a market impact, although it is more reflective of reality. Nine of this year’s ten employment reports have seen the initially reported number revised lower. These negative revisions are significant. The revisions to the past two months totaled 101,000 job losses.
Also within the Business Survey, wages moderated further. Hourly earnings rose just 0.2% in October, but decreased on a year-over-year basis from 4.3% to 4.1%.
Of greater importance is the decline in average weekly hours worked from 34.4 to 34.3. This is down half an hour from earlier this year, and while it might not seem that impactful, when quantified across the labor force, it equates to the elimination of roughly 2 million jobs.
Weekly earnings, which is reflective in workers’ paychecks, have moderated significantly over the past two months, from a level of 4% year-over-year to just 3.2%. This is a meaningful decline in a short period of time and points to lower wage-pressured inflation.
The BLS Jobs Report has two parts, the Business Survey, which we have just explored, as well as the Household Survey, where we find the unemployment rate. The Household Survey showed a loss of 348,000 jobs. This caused the unemployment rate to rise from 3.8% to 3.9%, which is now 0.5% above the low of 3.4% in April 2023. Historically, a rise from the low of 0.5% or greater is an extremely reliable indicator that a recession is nearby.
One final note on the unemployment rate. There was an exodus of 201,000 people from the labor force. This supports the increase we have been seeing in Continuing Unemployment Claims of 160,000 in less than two months, signaling that while employers are holding onto their workers longer, it is clearly more difficult for workers to find employment once they have been let go. Without the 201,000 decline in the labor force, the unemployment rate would have risen to 4%.
By Barry Habib, Dan Habib and Diana Bajramovic @ MBS Highway