You heard it here first

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.

Update: Stefan pointed out that revisions to earlier months mean there was only a net gain of 688,000 compared to the previous month’s estimate (not 1.2 million). Interestingly, the household survey again came in very strong, with a 1.2 million gain. That lowers the employment gap from 2.9 million to only 1.7 million–a very rapid rate of closure in just one month.

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?

PPPS. LOL, Fox News obviously doesn’t read my blog.



18 Responses to “You heard it here first”

  1. Gravatar of Matty Wacksen Matty Wacksen
    4. February 2022 at 12:06

    I hate linking to zerohedge because it feels a bit dirty, but I do read it to broaden the range of media I consume. They claim the newest job numbers beat is based mostly on the seasonal adjustment:

    Would be interesting if you have any comments on this.

  2. Gravatar of Stefan Stefan
    4. February 2022 at 12:19

    This isn’t right. December 2021 levels are 221,000 higher. The monthly revised gains are offset by seasonal adjustment corrections in the opposite direction earlier in the year.

    The net gain after revisions for Jan ’22 is 688,000, not 1.2 million.

  3. Gravatar of ssumner ssumner
    4. February 2022 at 14:54

    Matty and Stefan, I think that’s right, but it doesn’t make the January gains any less impressive. Seasonal adjustments are done for a very valid reason.

    Think of it this way. If not for seasonal adjustments the gains in 2021 would have been much stronger. It all evens out over 12 months.

  4. Gravatar of Stefan Stefan
    4. February 2022 at 15:19

    I’m not arguing anything about seasonal adjustments. (Though the absolutely massive monthly revisions do make me extremely cautious about reasoning from any single month’s results) You’re correct the household numbers were telling us something important and labor markets have recovered quickly.

    I’m just saying you ought to correct this number;

    “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.”

    This should read 668,000, not 1.2 million. You can’t add on the previous 2 months revisions and ignore the rest of the revisions for earlier months in 2021 released today. We are now 668,000 payroll jobs higher than reported a month ago, not 1.2 million.

  5. Gravatar of Stefan Stefan
    4. February 2022 at 15:21

    **688,000 🙂

  6. Gravatar of Lizard Man Lizard Man
    4. February 2022 at 16:16

    What about the productivity gains of the 4th quarter? If productivity continues to increase like that, wages should be able to rise without inflation being too high.

  7. Gravatar of ssumner ssumner
    4. February 2022 at 19:08

    Stefan, Sorry, I missed the earlier revisions. Maybe year over year figures are the best way to go.

    Lizard, With these revisions won’t productivity be revised downward?

  8. Gravatar of Effem Effem
    5. February 2022 at 05:25

    You don’t need to consult textbooks as plenty of your contemporaries are clearly more concerned about tightening than inflation. Perhaps ask them how this makes sense or join a few podcasts- I’d love to hear the discussion. David Beckworth comes to mind. A former champion of NGDPLT is now an inflation apologist as best I can tell. Politics (blue team) and self interest (home/stock prices) trump expertise as best I can tell.

  9. Gravatar of ssumner ssumner
    5. February 2022 at 07:46

    Effem, Really?

  10. Gravatar of Michael Rulle Michael Rulle
    5. February 2022 at 08:31

    “less accurate” does not mean not accurate and it definitely means more than merely providing “some” more information on the margin.

    I assume you have measured the two methods over time to see in the long run how different they really are. Every economist agrees it is “less accurate”. But my perception has been (yes perception and maybe bad memory) when Household is much higher than the Survey, it tends to be more accurate—-or at least will correlate with the survey increasing its numbers in following months.

    I do not recall you forecasting higher inflation before there was higher inflation. And the reason Powell had 0% and QE is he was not forecasting 6%——-which you were not either. So perhaps that is why you cannot “find that model”.

    Again, I perceived his last statement as not hawkish——relative to expectations—-but “dovish” (relative to my expectations). I still believe he is biased toward slower tightening as I believe you have stated recently too.

    So now your 0% I-rate and 6% inflation will get tested. Job market appears “hot” (but we are not Phillips curve people anymore—-right?) -he will try to get inflation down (or he believes, as well, it is coming down). He will obviously raise FF (25bp)—which is almost funny—-he needs inflation to begin dropping (PCE ex-food and energy) in next week months, or his world view will have to change.

    To paraphrase Sonny Corleone, he is not a war time (I.e., high inflation) consigliere.

  11. Gravatar of Spencer Bradley Hall Spencer Bradley Hall
    5. February 2022 at 08:32

    The job gains are due to the O/N RRP volumes. Volumes plateaued while POMOs still create new money – savings deposits transmogrified into transaction deposits.

    Powell has cemented the prospect of knowing less and less about money, the economy, and inflation.

  12. Gravatar of Don Don
    5. February 2022 at 19:02

    I see labor force participation rate was pretty flat between July 2020 and July 2021 (61.7%). It has since climbed to 62.2%. That feels pretty low by standard of the last 10 years. I do remember the Econ 101 fix for stagflation, but I can’t imagine the Democrats pursuing a supply-side fix.

  13. Gravatar of Ankh Ankh
    6. February 2022 at 06:58

    “disappointing, but stronger than the data suggests”.

    Yes, don’t look at the data guys.
    The data is just data, like words are just words…

    The data showing the vaccine is killing people is wrong data.
    The data showing the economy is tanking is racist data.
    The data showing that the west is moving towards totalitarianism is just “right wing nazi” data.

    Whatever you do, don’t look at that data.

    It’s really all okay. Trust me. I know more than you.

  14. Gravatar of Rinat Rinat
    6. February 2022 at 07:11

    This is the consequenece of Sumner’s radical left policies

    Homeless man tells the truth, because unlike Sumner’s democrats he’s an honest guy with a brain!

  15. Gravatar of Henry Henry
    6. February 2022 at 08:38

    journalists being harrassed by a totalitarian genocide party. You know, the same party the DNC wishes to emulate, and the party Sumner praises every month, on que, as if he’s being paid to do so.

  16. Gravatar of ssumner ssumner
    6. February 2022 at 08:39

    Don, Ten years ago, baby boomers had not yet retired.

  17. Gravatar of Effem Effem
    7. February 2022 at 04:19

    Scott, it was obvious (and forecasted) that we’d experience an NGDP overshoot at least 6-12 months ago (and any proponent of NGDP targeting would call for targeting the forecast). Beckworth is not credible to be concerned all of a sudden – that’s a long time lost in monetary policy terms.

    Waiting til the absolute last possible minute to concede we are running hot is indistinguishable from being an inflation apologist. (And not until the political winds changed, of course, now that inflation is a liability for Team Blue).

  18. Gravatar of ssumner ssumner
    8. February 2022 at 10:59

    Effem, I think your “Team Blue” comments on Beckworth are just silly. In any case, this is my blog, so why not comment on my views?

    Regarding what was known 12 months ago, both most economists and the TIPS markets expected much less inflation than what actually occurred.

    In 2020, this blog was full of commenters demanding that I acknowledge that the Fed had abandoned AIT, because inflation was obviously going to come in under 2%. I can’t win.

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