Overrated jobs? What you need to know about the Fed chairman’s comments – Washington Examiner

Federal Reserve Chairman Jerome Powell provoked significant comments this week with his remark that job gains may be overstated. Here’s what you need to know about what he said and what he might say.

What did he say

At a news conference Wednesday, Powell fielded a question about the health of the labor market. As part of his response, he said: “You’ve got strong job creation, you’ve still got wage jobs coming in still strong, although there’s an argument that they might be slightly overstated, but they’re still strong. “

Powell was referring to job numbers reported by the Bureau of Labor Statistics. Job growth has averaged about 250,000 per month for the past three months, a strong pace by historical standards.

Some commentators interpreted Powell’s remarks as indicating that he does not trust the BLS numbers. For example, high-profile whistleblower Edward Snowden tweeted: “I’m not sure I’ve ever seen the chairman of the Federal Reserve publicly accuse the White House of cooking the books on employment numbers, but here we are.”

What it could have meant

It is not clear exactly what “argument” Powell was referring to. The Federal Reserve did not respond to a request for clarification.

But Fed watchers have identified several reasons to think the payroll jobs numbers may be overstated, any of which Powell may have had in mind.

Keith Hembre, chief investment officer for Liniam Capital, noted in an email Washington Examiner that response rates for the payroll survey conducted by the BLS have fallen from 60% or higher before the pandemic to below 45%.

At the same time, a gap has arisen between the enterprise survey, which is used to calculate payroll jobs, and the household survey. The household survey, which is smaller and also had lower response rates, is used to calculate the unemployment rate. But it also records job creation, although the numbers are not directly comparable to the payroll numbers. The household survey showed much weaker job growth over the past year: just 339,000 jobs, compared to 2.79 million in the household survey.

Hembre pointed to other reasons to think the payroll numbers may be overstated, including the fact that earnings have been more stable than might be expected given output growth — typically, job and output growth are closely intertwined.

“Overall, wage growth looks remarkably strong compared to GDP growth,” Hembre said.

There are other possibilities for what Powell may have been referring to. Anna Wong, the US chief economist for Bloombergnoted in X that a newly published analysis by the Federal Reserve Bank of Philadelphia suggested that payroll job numbers are likely to be revised downward.

“Great that Powell admitted that payrolls are overstated,” Wong noted.

The BLS reevaluates its payroll numbers, which are based on the monthly survey of establishments, in a comprehensive job count, a process that can result in major revisions. These revisions will be announced in January 2025.

This comprehensive count, the BLS Quarterly Census of Employment and Wages, is a quarterly estimate of employment and wages reported by employers, covering more than 95% of U.S. workplaces. Figures from the QCEW released last week showed that job growth was much weaker than the payrolls numbers suggested – 60,000 fewer in the month.

However, it is possible that QCEW surveys and households are inactive, rather than payroll numbers.

One reason this may occur is that surveys are less likely to capture the employment of unauthorized immigrants. A recent analysis by the Congressional Budget Office, which included data on the number of people crossing the border without authorization, found that the influx of illegal immigrants in recent years has resulted in faster population and employment growth. higher than reported by the BLS.

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Goldman Sachs economists noted in a recent commentary that the QCEW is based on comprehensive unemployment insurance data, but unauthorized immigrants generally do not qualify for unemployment benefits.

“Real-time payroll numbers are currently capturing most, but not all, of the job gains by unauthorized immigrants, which means that true job growth is actually higher, not higher. low,” the analysis concluded.