In another indication that the U.S. may be near—if not already in—a recession, the Bureau of Labor Statistics (BLS) just released its Current Employment Statistics (CES) survey. The results are troubling. The CES benchmark revision reveals that previous government estimates of employment levels were overstated by around 819,000 private sector jobs as of March 2024. This implies that nearly one-third of all the private sector jobs reported in April by the BLS as having been created now appear to not have existed at all. Most of the overstatement came from higher paying or consumer facing industries, such as professional services, manufacturing, retail, and hospitality. Professional services, which tend to be amongst the highest paying sectors, were the most overstated at 358,000 jobs.
This downward revision is the second worse restatement ever recorded. The worst was in 2009, in the depths of the global financial crisis, when 824,000 jobs were erased from the previous BLS estimate. The latest large correction begs the fundamental question, how could the BLS get it so wrong?
This is not the first time in recent years that the BLS jobs data have been called into question as systematically overstating the actual employment situation. Since 2022, the BLS has eventually revised downward its initial monthly job creation report no fewer than 15 times. While the initial report gets the headlines and the cheerleading from the financial media, the revisions usually go unnoticed. The BLS models, which are based on estimates from government statistical analysis, have from time to time differed widely from private sector estimates and from other analysis performed by the Federal Reserve system. For example, ADP, the leading U.S. payroll company, estimates that total private sector employment has grown by only six percent in total in the four and a half years since December 2019, the period immediately prior to lockdowns. This implies average employment growth of only 1.3 percent per year.
There are powerful and embedded institutional incentives towards overestimating the strength of the labor market and thus of the health of the economy as a whole. The current administration has relied upon the BLS data in support of its message that Bidenomics is working, and that the U.S. economy is strong. Investors in the stock markets take comfort from the benign data to convince themselves that the economy is growing and that one of the most expensive equity markets in history is nonetheless fairly valued. This has, in all likelihood, contributed to a persistent asset bubble on Wall Street that often time appears disconnected from Main Street’s economic realities.
As goes the labor market, so goes the U.S. consumer. Personal consumption expenditure, i.e. the consumer, represents some 70 percent of U.S. Gross National Product. Without new jobs and real (after inflation) wage growth, GDP will not grow. According to data from the Atlanta Fed, real wage growth was negative for most of 2021 and 2022, with some improvement in 2023. The BLS’s own wage data confirms that weekly real earnings for those who are employed has declined by 6.4 percent since the second quarter of 2020. The decline in real wages is much worse if, as I have previously asserted, the CPI (Consumer Price Index) data are underestimating the actual level of inflation.
The consumer is cash-strapped, overly indebted, and increasingly closing its wallet to everything other than the most essential of expenses. This explains why, with the exception of the value and dollar store players, the big box retailers and restaurants have been struggling. As one consumer facing CEO recently said to me, “No one wants to buy anything.” How can they, when they are job insecure? This creates a vicious cycle. When consumers don’t spend, companies lay off employees. In the tech sector alone, there have been over 134,000 layoffs year to date, and over 660,000 since 2020. Large tech company jobs are, on average, well-paying and abundant in benefits. They are also, unfortunately, harder to regain once lost through terminations of employment, especially now when most large firms are reducing headcounts to appease Wall Street. But it is not just the tech companies like Amazon (100,000 layoffs since 2021) wielding the axe. Big manufacturing and consumer companies have made sweeping cuts, including well-known brands such as General Motors (35,000), Disney (21,000), Ford (12,900), GE (7,200) and Coca-Cola (6,000).
Where have these former employees gone? Apparently not to other jobs. According to a recent survey from the New York Fed, individuals who reported searching for a new job in the past four weeks increased by 46 percent from one year ago, to a ten-year high of 28.4 percent. Those currently looking for jobs expect their annual salaries to be lower than a year ago. Of those still employed, the percentage which expect to become unemployed in the near future increased by nearly 13 percent to 4.4 percent, the highest level in the Fed’s data series spanning a decade. Continuous jobless claims are at their highest level since November 2021.
The employment data revision is yet another indication that the real economy is in much worse shape than has been described by the mainstream media. Pressure is mounting on the government and the Federal Reserve to “do something” and fast. This means rate cuts are likely in September, and that we can expect more government stimulus, rebranded as something new and different, but in essence the same old thing. Both lower rates and larger government deficit spending mean higher inflation. This is the only way to keep the unemployment situation from trending much worse than we have seen to date, and thus seen as the lesser of two evils.
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