The mystery of the vanishing jobs

Rob Armstrong (0:06)

Pushkin. The unemployment rate in the United States is 4.3%.

And that is a pretty good number. It's lower than the historical average, and it's not a million miles from what economists call full employment. Unfortunately, there is another signal coming from the labor market, which we don't like. The economy is creating fewer jobs every month. Today on the show, what is the message from the labor market? And in particular, are we in trouble right now? This is Unhedged, the markets and finance podcast from the Financial Times in Pushkin. I am Rob Armstrong, and I'm coming to you from a crisp, glittering and autumnal New York city where I am joined by the unhedged newsletters expert on the employment market in America, Aiden Reiter. Aiden, welcome to the show.

Aiden Reiter (1:09)

Thanks for having me.

Rob Armstrong (1:10)

So we have sort of two separate issues to talk about. One is that the monthly job numbers are sluggish. Kind of last three, four months, we've seen additions in the low tens of thousands. And then we got this whopping annual revision to the last years worth of numbers. So there's a lot of kind of tricky stuff going on here. Let's start with the monthly numbers. What are we learning there? Yeah.

Aiden Reiter (1:38)

So we've gotten some less than ideal monthly job reports in the last two months. So in July, things came way under expectations. The market had a proper freakout.

Rob Armstrong (1:47)

Yes. Less than ideal is a powerful phrase, Aiden. This is like the kind of phrase my doctor uses when he sees my blood work. It's like, your cholesterol is less than ideal.

Aiden Reiter (1:56)

Well, I think it's intentionally very here as it is there. Okay. Because maybe like your doctor, we have no idea what's going on.

Rob Armstrong (2:03)

Okay, good. But anyway, the numbers, the numbers are not what we want to see.

Aiden Reiter (2:06)

They're not what we want to see. And especially this past month in August, we got a very low report. That was 22,000. And on top of those, every time you get a monthly job report, you also get revisions for the two months prior. And those revisions have actually been what really moved the market. So now with the revisions, so that's the most recent estimates we have, the average has been 29,000 jobs added over the last three months, which is astonishingly low.

Rob Armstrong (2:30)

And a year ago, it was like 100,000 a month or something like that.

Aiden Reiter (2:33)

150, 160, we've been the 200s.

Rob Armstrong (2:36)

It's a big slowdown in jobs added.

Aiden Reiter (2:37)

It's a big slowdown. And actually, this revision showed that in the past three months, at one point, we actually had negative job growth. That means the job market shrank.

Rob Armstrong (2:46)

The June number actually shrank.

Aiden Reiter (2:47)

Yes. And that was post-revision, though. It didn't look that way when it first came out.

Rob Armstrong (2:50)

When it first came out. And then, tell us about this big annual revision. What is that? I think I find that kind of confusing.

Aiden Reiter (2:57)

Yeah, so it's important to remember in this broader context, right? So Trump has attacked the Bureau of Labor Statistics, said these numbers are faked, these revisions are too big, and sparked a lot of concern. The reality is, it is super duper hard to count how many jobs are added in the US economy. It is a big economy.

Rob Armstrong (3:15)

It's a big country. 300 million people or whatever in our country. And you're trying to figure out who has jobs and who doesn't.

Aiden Reiter (3:20)

350, and actually we don't even know how many people, really. That's a whole other conversation we'll get into. But the point is, it's very hard to do. The way they do this is with really clever statistics and clever modeling. You have two big surveys. There's a current population survey, which is how you find the unemployment rate, and that is 60,000 households.

Rob Armstrong (3:37)

Households. You call people. You're calling people.

Aiden Reiter (3:40)

Then there's the current employment survey, which is you call offices, companies, some companies required to report, et cetera. What you need to do when you're able to do that is chase down these numbers, right? You get people to answer the phone, give you the numbers, and on top of that, you have to cleverly impute the areas where you're missing people entering the phone. Both those things require a ton of resources. Unfortunately, with our era of smartphones and spam calls, et cetera, the response rate has been just rapidly declining over the last five years especially, and even 20 years before that.