Oops, BLS Does It Again

August Employment Report Beats Expectations

Well, the Bureau of Labor Statistics (BLS) did it again to us on Friday, releasing an August Employment Report that far exceeded market expectations. This came despite contrary data from Revelio Labs, ADP, and JOLTS (Job Openings and Labor Turnover). This commentary has been particularly critical of the BLS’s reporting over the years, and it is reports like this that lend support for our criticism. Repeatedly, the BLS’s own QCEW (Quarterly Census of Employment and Wages) has shown massive revisions lower than the BLS’s numbers.

As real estate professionals, we could ask: why do we care about these possible errors? The answer is simple: If the data were reported accurately at initial release, it is quite probable that interest rates would be lower, helping our industry, the economy, and American families. Thankfully, it appears markets agree with us and have basically shrugged off the report and ended the week nearly unchanged compared with before the report.

JOLTS Openings Likely Overstated

JOLTS reports a month behind, so the BLS released the July numbers this week. Job openings rose 89,000 to 7.27 million, but this follows a large downward revision of 177,000 from June. This figure was also below expectations. Despite the weakness, this number is still likely overestimated.

Recent reporting indicates that 1 in 5 job openings wasn’t real, either posted to make the company look stronger or hoping to find an all-star candidate, but not a real position. Jobs are also counted at the state level. This means remote jobs could be advertised in multiple states for only one opening. This leads to duplicate counting and artificially inflates the number.

Other data in the report also points to weakness. The Hiring Rate was 3.2%, down from 3.4% and one-tenth of a percentage point away from the lowest level going back to 2011, excluding COVID. The Quits rate fell to 1.9%, which is tied for the lowest level since 2014, excluding COVID. The Quits rate is important because it shows employees are not voluntarily quitting as much because there is much less poaching from other companies due to less hiring.

ADP Employment Shows Private Sector Softness

ADP released its August Employment Report. Since ADP is one of the largest private payroll providers, they are uniquely poised to see the employment data in private (non-government) companies. ADP showed just 38,000 jobs were created, weaker than a low estimate of 53,000. This was the fewest jobs created in 7 months and a definite sign of labor market weakness.

In the report, 45,000 jobs came from Education/Health Services, which isn’t an economically sensitive sector. This means all other sectors lost 7,000 jobs, in aggregate.

Revelio Labor Data Confirms Weakness

Revelio released its private labor report for August. Similar to ADP, they reported only 37,000 job creations. Based on JOLTS, Revelio, and ADP, we would have expected the BLS to be similar, but no.

BLS Payrolls Diverge from Private Data

The BLS reported 162,000 jobs were created in August, well above estimates of 58,000. They also added positive revisions of 55,000 to the previous two months. Keep in mind that the BLS, unlike ADP and Revelio, includes government jobs.

If we remove the government jobs from the BLS number, they show 127,000 private payrolls. ADP showed 38,000 and Revelio 37,000. As we have discussed previously, the BLS uses a Birth/Death model to estimate the creation (birth) and closure (death) of small businesses. This model showed 74,000 jobs were created. This compares to zero job growth in small businesses in ADP’s report.

Wage Growth Leaves Real Earnings Negative

The BLS data shows average hourly earnings rose 3.1% over the year. That is running below CPI’s inflation rate of 3.4%. This means real wages are negative. It is hard to say we have a strong labor market with this negative wage growth.

Fed Meeting Faces Conflicting Labor Signals

The upcoming Federal Reserve (Fed) meeting is in 2 weeks. The Fed futures market is pricing in about a 60% chance of a rate hike at this meeting. Several Fed speakers have already indicated that they feel the employment picture is strong. What can really influence them is the Consumer Price Index (CPI) report next week.

Looking Ahead: Key Economic Data On Deck

We hope you have a great Labor Day weekend!

• Monday, September 7: Markets closed for Labor Day
• Tuesday, September 8: ADP Weekly
• Wednesday, September 9: 10-year Auction
• Thursday, September 10: Producer Price Index (PPI, wholesale inflation)
• Friday, September 11: CPI