Lots More on the Big Problem With the Monthly Jobs Report

SPEAKER_1 (0:02)

Bloomberg Audio Studios, Podcasts, Radio, News.

Tracy Alloway (0:08)

Joe, I have an embarrassing confession.

Joe Weisenthal (0:10)

Go on.

Tracy Alloway (0:11)

You know the birth-death adjustment?

Joe Weisenthal (0:13)

I have the same confession.

Tracy Alloway (0:15)

I used to think it was something about the population of people and the labor supply, but it's not. It's about business formation.

Joe Weisenthal (0:22)

Yes, that's right. My confession is even more embarrassing, which is that I literally always forget what it is.

I did a deadlift.

Tracy Alloway (0:31)

I am both the most popular trader and most successful trader at Citadel.

Joe Weisenthal (0:36)

Fed is going viral.

Tracy Alloway (0:37)

Barges.

Joe Weisenthal (0:38)

This is an after-school special, except.

Tracy Alloway (0:40)

I've decided I'm going to base my entire personality going forward on campaigning for a strategic pork reserve in the US.

Joe Weisenthal (0:46)

Black gold.

Tracy Alloway (0:46)

These are the important questions. Is it robots taking over the world?

Joe Weisenthal (0:49)

No, I think that in a couple of years, the AI will do a really good job of making the Odd Lots podcast. One day, that person will have the mandate of heaven.

Tracy Alloway (0:59)

How do I get more popular and successful?

Joe Weisenthal (1:02)

We do have the perfect guest.

Tracy Alloway (1:05)

You're listening to Lots More, where we catch up with friends about what's going on right now.

Joe Weisenthal (1:09)

Because even when the Odd Lots is over, there's always lots more.

Tracy Alloway (1:13)

We really do have the perfect guest.

Joe Weisenthal (1:19)

When people are listening to this, it is Jobs Day. We're recording this September 4th, Jobs Day, September 5th. The important thing to know right now is that to some extent, that monthly non-farm payrolls report that everyone depends on and relies on has never felt to me like more of a moving target in terms of what I'm supposed to be looking at. For many years, it's like, okay, how many jobs were created this month? Yeah, it's going to get revised a little bit, but that tells you something. Now between seasonality, post-COVID sort of normalization that's still processing. And then of course, this sort of changes in immigration policy, which have swung dramatically in a year. These numbers, it's not clear that... You actually have to put in some work to understand these numbers.

Tracy Alloway (1:59)

No, totally. And also, I mean, the BLS itself seems to have some difficulty with the numbers, because the trend that we've seen is they put out a non-farm payroll, like an initial estimate on a Friday, and then a few weeks later, you get the revisions, and the revisions always seem to be downwards lately.

Joe Weisenthal (2:17)

Lately, they've been mostly downwards. Then, there's annual revisions, and those are coming up, I believe, next week. We're at a time when setting aside the collection, and of course, setting aside the fact that the BLS chief has been fired, and there's going to be a new one at some point, setting aside all of these things, we're also at a time when there are significant questions about just the macro state of the economy, and whether the low-hiring, low-firing mode, which is characterized for a while now, is at risk of deteriorating further. I don't know.

It's a tough read.

Tracy Alloway (2:48)

You know who we should ask? Steve Englander.

Steven Englander (2:51)

Okay, but let me start with a broader question, issue maybe.

Joe Weisenthal (2:55)

Excellent.

Steven Englander (2:56)

And the thing is that the question has changed. Like, in the past, we used to say, okay, last month or, you know, last 12 months, NFP growth was 200,000. Looks like 100,000 now. Things have slowed down. That's all we had to know. This time around, because supply is so important, everyone is making an estimate and kind of saying, well, native-born workers, you know, maybe 70,000. If you're pessimistic, if you think we have net emigration from foreign-born workers, you have a view of 50 And if you think that there's still some legal immigration coming in, maybe you're at 100 And that means that getting the level right is really important. And the problem with the NFP numbers, that actually has two components, one of which is the one that we all think about. They survey about 160,000 businesses, maybe 600,000 establishments, and basically say, okay, how many workers did you have last month? How many did you have this month? And through their statistical analysis, they say, okay, this is a change. So that's for firms that are in continual operation that gives them that number. The problem is that they have no handle on firms that have just opened and very little handle on firms that have just closed. So they use something called the birth death adjustment to adjust for employment by those latter two categories of firms, you know, net job creation from new firms minus closing firms. And the problem is that they have a very simple model. And it was fine in the past when all you cared about was the direction, but now when you're saying it really matters if NFP gross is 50, having a bias in that number really affects things. And what you see is that that number has through thick and thin has stayed about 100,000 jobs, you know, when you seasonally adjust it, because they publish a not seasonal adjustment, but you can do a rough and ready seasonal adjustment. It's very stable at about every month, 100,000 jobs or almost 100,000 jobs are coming from that birth death adjustment in terms of what we see on Bloomberg page Friday morning at 8 30 We have another source of information on that, which lags but which is far more accurate. This is something called the business employment dynamics. It lags by about eight months, but it's based on the quarterly census of employment and wages. What that shows is that in 2024, like Q4 2024, say to four quarters, both the employment growth coming from continuing firms and continuing operation and the employment growth from newly open firms, let's just close firms, they've tanked.