Job Growth Has Been Much Less Impressive Than Reported

Labor market still solid, but hiring will continue to slow down, experts say

Roy Maurer By Roy Maurer August 29, 2019
Job Growth Has Been Much Less Impressive Than Reported

​The U.S. jobs market is still expanding, but not as much as previously thought.

New figures show that employers added a half million fewer jobs than previously reported in the year between March 2018 and March 2019. Employers added about 2 million jobs during that period, down 501,000 from prior estimates, according to the Bureau of Labor Statistics (BLS).

The downward reduction is larger than usual and brings the average monthly jobs growth over that period down from 210,000 to about 168,000.

"The U.S. labor market has cooled a lot more over the past year than previously believed, with job gains running 20 percent smaller than previously estimated," said Guy Berger, principal economist at LinkedIn.

Josh Wright, chief economist at recruitment software firm iCIMS, noted that the correction is the largest since 2009.

"Normally, large revisions come alongside a major turning point in the economy," Wright said. "But while we're all on tenterhooks about the prospect of recession, it doesn't look like we're at a major turning point yet. Jobless claims from that period [between March 2018 and March 2019] have mainly stayed stable and, if anything, gone down. This revision modestly undercuts the perceived strength of the labor market but doesn't suggest the economy is falling off a cliff."

Dean Baker, the co-founder and senior economist at the Center for Economic and Policy Research, a think tank based in Washington, D.C., added that "it is unlikely that we will find that we were actually in a recession between March of 2018 and March of 2019, but add this to the list of worrying data points."

Berger agreed that the new data doesn't look recessionary but more closely aligns with other signals that U.S. labor market momentum is slowing down.

The revisions are preliminary and part of an annual review process. Data from the rest of this year will be released in February 2020.

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Why So Far Off?

Baker explained that the revision is based on a BLS review of state unemployment insurance records, which provide a more definitive dataset of payroll employment in the U.S. than the agency's monthly employer survey. "This is a large survey of businesses, but it is a survey, so that means there will be some error," he said.

Experts believe the miscalculation has something to do with the BLS model for determining the number of businesses created and lost each month. The bureau estimates these data based on growth in output.

"It usually is reasonably accurate, but in this case, it clearly was not," Baker said. "What this revision means is that we saw more firms die or fewer new firms formed than the model projected. And presumably, jobs are included in this calculation. That may mean nothing or could suggest that either more firms are going out of business and/or fewer firms are being started than we should expect."

Retail Especially Hard Hit

Most sectors experienced downward revisions, including monthly hiring juggernauts like the leisure and hospitality sector (revised down by 175,000 jobs), and professional and business services (revised down by 163,000 jobs). But the news from the retail industry is particularly dire: Retail was downgraded by 146,400 for a period in which it already showed thousands of job losses.

"The retail sector is in even worse condition than we thought—it accounts for about one-third of the total downward revision," Wright said.

Education and health services were found to have 63,000 fewer jobs, while the number of jobs in the mining and logging category, which includes the oil and gas industry, was revised to show 16,000 fewer jobs. BLS adjusted construction jobs down by 9,000 and manufacturing jobs down by 3,000.

"The revisions to professional and business services and education and health care suggest that this is a broad-based revision, an overall misfire at the BLS," Wright said.

There were also some newly found job gains. Retail's slide was partly offset by an increase of 78,700 jobs in transportation and warehousing. "We know that some retail jobs are being transferred to e-commerce support in transportation and warehousing, but certainly not all of the recorded losses," Wright said.

Information services (33,000), the financial sector (20,000) and government employers (13,000) recorded slight gains above prior tallies.

The Conference Board Chief Economist Gad Levanon predicted that U.S. job growth would begin to show signs of slowing down this year as the constricting labor market stalls hiring.  

Job growth on The Conference Board's Employment Trends Index has been flat since the summer of 2018. "So far this year, job growth has indeed slowed down compared to 2018, which is not surprising given the modest economic slowdown and the recruiting difficulties associated with a tight labor market," Levanon said. "In the coming months, we expect job growth to remain solid, which will be enough to further tighten the labor market."

On the bright side, growing labor force participation rates will somewhat ease these hiring pressures, he said.



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