US struggles to measure job growth as pandemic skews labor market data
The U.S. government dramatically underestimated the number of jobs created this year as it struggled to analyze data distorted by the effects of the pandemic, creating new challenges for policymakers navigating a highly volatile economic environment.
During the year 2021, the government agency that publishes monthly employment statistics in the United States revised upwards its initial estimates of wage bill growth to a total of 976,000 jobs, the highest adjustment in a single year.
Revising past estimates to reflect new data is a routine exercise: the initial estimate calculated by the Bureau of Labor Statistics (BLS) is updated twice, with the second estimate published in the Jobs report. of the following month and the third estimate published the following month. .
However, it is during major economic inflection points that these numbers are not only most difficult to measure, but also most closely monitored. This means that revisions to the data, usually released without fanfare, suddenly have the potential to dramatically change conceptions of the health of the labor market and, in turn, the way in which policy needs to be fine-tuned.
“The economic fundamentals have evolved at an unprecedented speed. Not in my lifetime and not in the lives of most people alive today, we have seen. . . an economic recovery as rapid as it has been since spring 2020, ”said David Wilcox, who previously headed the Federal Reserve’s research and statistics division. “The challenges of economic measurement in a pandemic environment are enormous. “
The pandemic has proven to be particularly thorny for economists examining the U.S. labor market, as it has not only created delays in reporting data, but has also distorted the seasonal rhythms that are typically factored into estimates. The scale of wage bill growth during the economic recovery has also created challenges.
“You are taking an already difficult task and making it absolutely Herculean,” said Ernie Tedeschi, senior economic adviser to the Biden administration as a member of the Council of Economic Advisers.
This difficulty was manifested again in the last employment report published on December 3, which showed only 210,000 new jobs created in November. The unemployment rate fell further to 4.2 percent, far from the level of nearly 15 percent reached last year.
The figures baffled economists, especially because of a large gap between the two surveys that make up the monthly report. The “establishment” survey of companies, from which the key figure for employment is subject to revision, suggests a marked slowdown in recruitments. The household survey of individuals, used to calculate the unemployment rate, showed a gain of 1.1 million.
To further complicate matters, the BLS largely updated its September and October numbers, bringing September’s job gains to 379,000 and October’s to 546,000. jobs were recovered in 2021.
“Everything has been so much bigger than before,” said Stephen Crestol, an economist who spent more than three decades at BLS. “Big drop and big increases, we’re not used to that.”
The task of estimating payroll figures during the pandemic has been complicated by two main factors. First, a growing number of companies are late submitting their responses to the survey.
The agency has struggled to get companies to join the survey of establishments during the pandemic, Crestol said. Participation, which is voluntary in all but three states, has halved since last February.
Even if companies agree to take the survey, their responses may arrive after the deadline for the initial estimate in the Jobs Report, which is released on the first Friday of the month.
For the november report, 65.3 percent of businesses responded on time, the lowest rate for a November report in more than a decade.
To produce the first figure, the BLS calculates an expected payroll for companies that have not yet responded. Late responses are incorporated into subsequent revisions.
“In a normal month, you don’t get as much of a change in bottom line,” said Erica Groshen of Cornell University and former BLS commissioner. But in a year like 2021, marked by an extremely rapid economic recovery, the companies that are slow to respond could recruit more quickly, she said, leading to larger upward revisions.
Seasonal adjustment factors have also made it difficult to assess employment growth.
Economists take a close look at “seasonally adjusted” numbers because they are supposed to offer the most direct view of ongoing trends once regularly occurring fluctuations in data related to events like the start of the school year are removed. .
Retail businesses in November, for example, reported 331,600 more people on the payroll than in October. But the BLS adjusted this number is declining as recruitment in the retail sector tends to pick up just before the start of the holiday season. The agency said the sector had “lost” 20,400 jobs after taking seasonal adjustment into account.
In total, raw figures showed payroll growth of 778,000 in November, which the BLS adjusted downward to 568,000, a record revision.
“Seasonal models are not some kind of law, they are just models,” said Betsey Stevenson, professor of economics at the University of Michigan and a member of the CEA under the Obama administration. “Covid has done more to disrupt our habits than anything I could have imagined.”
Seasonal factors are based on data from the last 10 years, with more emphasis on recent years. In 2020, many movements were found to be outliers and were not included in the adjustment model.
The model is continually modified as new data arrives, leading to more revisions. “You get more data, so it affects your understanding of past seasonal trends,” said Nick Bunker of Indeed, the jobs website.
How the new variant of the coronavirus unfolds will determine whether the recent waves of review are about to increase or expand from here.
The implications are huge for the US Federal Reserve, which is monitoring the employment situation closely to get the green light to tighten monetary policy next year.
Christopher Waller, a Fed governor, said the central bank has already supplemented its models with high-frequency data and other sources, including the ADP Weekly Jobs Report.
“The more what we see in the future heals from a recession, the better statistical techniques will work,” Groshen said. “The more he’s motivated by a new variant and a different political response to it.” . . more models can fail because they are based on the past.