What The Media Missed: Jobs Growth Isn't "Surging." It's Slowing

What The Media Missed: Jobs Growth Isn't "Surging." It's Slowing - help wanted 1 6

BREAKING: The Bureau of Labor Statistics is 90% sure that the U.S. economy added somewhere between 42,000 and 270,000 jobs in the month of December.

Wait, what?

That's right. The BLS, which is charged with calculating montly jobs gains, released today's labor market report showing 156,000 new jobs were added in the month of December. But based on the way this data is collected, the U.S. economy may have added or subtracted an additional 114,000 jobs from that initial jobs estimate.

Yikes!

Interestingly, and more importantly, year-over-year jobs growth continued to slow. To be precise, jobs growth has slowed from 2.3% (year-over-year) in February 2015 to today's rate of 1.51%. The year-over-year growth rate captures the big picture better than blindly staring at these uncertain monthly oscillations. The long-term trend is that jobs growth continues to slow.

These nuances got lost in the shuffle of mainstream media headlines

Most media outlets suggested that jobs growth has been chugging along. Nevermind that the 156,000 number missed Wall Street consensus' estimate of 180,000. Here's mainstream media reporting on this morning's jobs report:

  • CNN Money: "The U.S. job market kept up its overall momentum right up until the end of 2016."
  • MarketWatch: "The U.S. added 156,000 new jobs in the final month of 2016 and worker pay rose at the fastest pace since the Great Recession, reflecting a surge in employment over the past six years that’s left many companies complaining about a shortage of skilled labor."

Chart of the Day: The Absurdity of predicting Monthly Jobs Growth 

Now take a look at today's Chart of the Day below. This captures the wide range of possible outcomes for the BLS's calculation of monthly jobs growth. This should throw cold water on anyone trying to come up with a montly estimate. Alas, Wall Street continues to guess. Here's Hedgeye U.S. Macro analyst in today's Early Look note published just before the 8:30 a.m. Jobs Report:

"Below is a friendly updated reminder from the BLS on the standard error in the NFP estimate.  To summarize, if NFP prints +114K this morning, the BLS is 90% sure we gained between 0 and 228K jobs."

In other words, Wall Street consensus should know better than to predict 180,000 jobs in December. With a range of plus or minus 114,000 jobs for a given month, economists could just as easily pull their nonfarm payroll estimate out of thin air.

What The Media Missed: Jobs Growth Isn't "Surging." It's Slowing - BLS CoD  2

P.S. If you'd like to dig into this a bit further, here's the exact language from the BLS explaining in detail the chart above and how the monthly Jobs number is derived:

"What does this chart tell us? The red dot for total nonfarm employment shows a gain of 161,000 jobs in October, as we reported on November 4. That number is an estimate based on our montly sample survey rather than a complete count of jobs each month. Different samples of employers might give us different estimates of employment change.

 

We can measure the sampling error, the variation that occurs by chance because we collected the number from a sample of employers instead of all employers. With our measure of sampling error, we can calculate a confidence interval. The blue bar for total nonfarm shows the 90-percent confidence interval ranged from 46,800 to 275,000.

 

We call this a 90-percent confidence interval because, if we were to choose 100 different samples of employers, the October nonfarm employment change could be between 46,800 and 275,000 in 90 of those samples."