Jobs overstated? What to know about Fed chairman’s comments- Washington Examiner

Federal Reserve Chairman Jerome Powell provoked significant commentary this week with his remark that job gains might be overstated. Here’s what to know about what he said and what it could mean.

What he said

At a press conference Wednesday, Powell fielded a question about the health of the labor market. As part of his response, he said: “You’ve got strong job creation, you have payroll jobs still coming in strong, even though there’s an argument that they may be a bit overstated but still they’re strong.”

Powell was referring to the payroll jobs numbers reported by the Bureau of Labor Statistics. Job growth has averaged nearly 250,000 a month for the past three months, a strong pace by historical standards.

Some commentators interpreted Powell’s remarks as indicating he does not trust the BLS numbers. For example, Edward Snowden, the high-profile dissident, posted: “Not sure I’ve ever seen the chairman of the Federal Reserve publicly accuse the White House of cooking the books on employment numbers, but here we are.”

What he might have meant 

It is not clear exactly which “argument” Powell was referring to. The Federal Reserve did not respond to a request for clarification.

But Fed-watchers have identified a few reasons to think the payroll jobs numbers might be overstated, any one of which Powell may have had in mind.

Keith Hembre, the chief investment officer for Liniam Capital, noted in an email to the Washington Examiner that response rates for the payroll survey conducted by the BLS have fallen from 60% or higher before the pandemic to below 45%. 

At the same time, a gap has arisen between the survey of establishments, which is used to calculate payroll jobs, and the household survey. The household survey, which is smaller and has also seen lower response rates, is used to calculate the unemployment rate. But it also records job creation, although the numbers are not directly comparable to the payroll numbers. The household survey has shown much weaker job growth over the past year: just 339,000 jobs, compared to the 2.79 million in the household survey.

Hembre noted other reasons to think the payroll numbers might be overstated, including the fact that gains have been more persistent than might be expected given output growth — usually, job and output growth are closely intertwined.

“Generally, payroll growth looks awfully robust compared to GDP growth,” Hembre said.

There are other possibilities for what Powell may have been referring to. Anna Wong, the chief U.S. economist for Bloomberg, noted on X that a just-published analysis from the Federal Reserve Bank of Philadelphia suggested that the payroll jobs numbers are likely to be revised down.

“Great that Powell acknowledged payrolls are overstated,” Wong remarked.

The BLS re-benchmarks its payroll numbers, which are based on the monthly survey of establishments, to a comprehensive count of jobs, a process that can result in major revisions. Those revisions would be announced in January 2025.

That comprehensive count, the BLS’s Quarterly Census of Employment and Wages, is a quarterly assessment of employment and wages reported by employers, covering more than 95% of U.S. jobs. Figures from the QCEW published last week showed job growth was much weaker than suggested by the payroll numbers — 60,000 fewer a month.

Still, it is possible that the QCEW and household surveys are off, rather than the payroll numbers.

One reason that might be the case is those surveys are less likely to capture employment of unauthorized immigrants. A recent analysis from the Congressional Budget Office, which incorporated data regarding the numbers of people crossing the border without authorization, found that the influx of illegal immigrants over the past few years has resulted in faster population growth and higher employment than reported by the BLS.

CLICK HERE TO READ MORE FROM THE WASHINGTON EXAMINER

Goldman Sachs economists noted in a recent commentary that the QCEW is based on comprehensive unemployment insurance records, but unauthorized immigrants generally don’t qualify for unemployment benefits.

“The real-time payroll numbers are currently capturing most but not all job gains by unauthorized immigrants, meaning that true job growth is actually higher, not lower,” the analysis concluded.