Here’s what I wrote a month ago:
The latest employment report is a disappointment, but the job market is actually somewhat stronger than this number would suggest. Consider the following:
While the payroll survey shows gains of only about 450,000 over the past two months, the (less accurate) household survey shows gains of over 1.7 million. That’s a phenomenal number, as household employment has gone from a deficit of 4.6 million to a deficit of 2.9 million in just two months.
But why pay any attention to the less accurate household survey? Because even though it is less accurate, it provides some information, at the margin. Thus it picks up gains in self-employment, which might matter during a period where people like working at home to avoid Covid.
It’s also worth noting that the payroll figures will likely be adjusted upward. How do I know this? Because the payroll numbers were revised upward in each of the past 8 months. The odds of that happening randomly are 1 in 256. Let’s revisit my prediction in two months to see if I’m right:
It turns out there was no need to wait two months. Here’s the FT:
“America’s job machine is going stronger than ever,” Biden said from the White House on Friday after data showed the US economy added 467,000 jobs last month despite the surge of Omicron. “[It’s] fuelling a strong recovery and opportunity for hardworking women and men all across this great country. America is back to work.”
The surprise increase in payrolls defied predictions by economists surveyed by Bloomberg, who had projected job gains of 150,000.
In addition to the jump in payrolls in January, there were large upward revisions to data from previous months, with the Bureau of Labor Statistics undercounting the number of jobs created by roughly 700,000 in November and December.
The monthly revisions of 398,000 for November and 311,000 for December were each greater than the largest single upward revision posted in April 1981, on a seasonally adjusted basis.
If newspapers reported these figures correctly (new estimate of levels vs previous estimate) they would have reported nearly 1.2 million more payroll jobs than the month before.
I’m searching my old textbooks trying to find the model that says the Fed should set rates at 0% and do QE when inflation is 6% and the economy is booming. Can someone help me?
PS. This is especially scary:
US labour costs have, in turn, surged, as employers raised wages and sweetened benefits to compete for talent. Hourly earnings rose 5.7 per cent last month compared with a year earlier, and 0.7 per cent compared with December, a larger jump than expected.
I recall that in the spring of 2020, Lars Christensen predicted a very rapid reduction in the unemployment rate. His specific prediction was a bit overly optimistic, as there was an unexpected summer surge in Covid. But he was mostly correct in arguing that economists were greatly underestimating how quickly labor markets would recover.
PPS. Here’s my theory of why the jobs figure was stronger than expected. Perhaps employment normally falls off after the holiday season—which factors into the seasonal adjustment formula. But given the current worker shortage, why would firms lay off workers now?