Real Jobs or Estimated Jobs?

The recent jobs report was pretty hot on the surface. The median estimate was 185,000 and the "Actual" number came in WAY HIGHER at 353,000. The highest estimate was 300,000. (lowest was 120,000) How is it possible the miss was so large? Remember, the guys who put out these estimates are pretty sharp and do this all the time. Certain data points can be "noisy" for sure, but this was odd.

Michael Green, CIO of Simplify, is brilliant, and if you are not following his work, you should be. He posted this chart in an interview, and I thought it was really interesting.

The BLS surveys private and government entities to see what's going on with their payrolls. That is, are they hiring anyone? Firing anyone? Cutting back hours? Etc.

In addition to the survey data, the BLS also uses an estimate for the net number of jobs created by new businesses (births) or lost in business closings. (deaths), or the "birth-death" ratio. Super weird to me they would call it the "birth-death" ratio, but whatever.

Supposedly, this estimate is not that influential. However, this time Green points out that over half of private sector jobs are coming from the birth-death model estimate. So....not real jobs, just theoretical.

And one criticism of the use of the birth-death ratio is that at "turning points" in the economy, like say a recession, the ratio can overestimate the number of new jobs being created.

What I find more concerning though is the crossing of the orange line and the blue. In the past, when the private sector payrolls crosses the birth-death estimate, recession follows.

That's consistent with other recession red flags I see, which is why I remain in the "recession has only been delayed, not skipped" camp.

Green also pointed out the response rates on the survey data is much lower than normal, so you have to question the authenticity of the headline jobs number. It's kind of like the S&P 500, people look at the index performance and assume it represents the top 500 companies, when it's really being dictated by a just a few.

Before you get all huffy, I'm not saying they are not good companies. I'm saying not everything is at it appears, and the devil could be in the details.