A Tale of Two Surveys: The U.S. Labor Market

A Tale of Two Surveys: The U.S. Labor Market

Anna Rathbun, Chief Investment Officer

“It was the best of times, it was the worst of times, it was the age of wisdom, it was the age of foolishness, it was the epoch of belief, it was the epoch of incredulity, it was the season of light, it was the season of darkness, it was the spring of hope, it was the winter of despair.” – Charles Dickens, A Tale of Two Cities

Charles Dickens begins A Tale of Two Cities with the dramatic juxtaposition of opposites as quoted above. And it seems that nearly two hundred years later, the U.S. labor market is exhibiting dramatic opposites as well between the two surveys taken by the Bureau of Labor Statistics (BLS). By way of background, the “Establishment Survey” is a representation of hiring and layoffs from the perspective of businesses, and the “Household Survey” is the perspective of the work force itself. For the good part of 2022, the two surveys have been giving us diverging views on the health of the U.S. labor market. Can we make sense of this phenomenon? Let’s explore.

For the month of October, the Establishment Survey reported a gain of 261,000 jobs on a seasonally adjusted basis, beating the consensus expectation at 195,000 jobs. There is a lot of “methodology” behind the way the BLS calculates these numbers, and much of it depends on statistical modeling. In particular, today’s focus is on the “birth-death” model, which tries to account for the birth and death of businesses (net business creation) and their impact on employment. Simply put, the “birth-death” model is often criticized because it is not accurate during turns in the cycle. When the economy has peaked and may be turning downward, as it seems to be at this time, the “birth-death” model tends to overestimate the net job creation from new businesses. For the month of October, if we leave out the effects of the “birth-death” model, we get something around 78,000 jobs gained instead of the 261,000 published number.[1]

The adjusted number makes more sense especially considering that the Household Survey has been telling a different story for a few months. In the latter survey, the number of full-time jobs has been falling and part-time jobs rising. And during October, the Household Survey recorded a 328,000 job loss, which was the first outright negative print for the year. And of those 328,000 jobs lost, 433,000 of them were full-time jobs lost (while part-time job gains were 164,000). Not a picture of health. We can also glean from other sources on the status of the job market. The CBIZ Small Business Employment represents hiring patterns of small to mid-sized businesses, and it has recorded decline in hiring for three straight months. Lastly, we are hearing anecdotal evidence of hiring freezes and layoffs. Most recently, we have heard about Facebook letting go thousands of workers, and Barclays bank eliminating jobs in its investment banking division.

We have been watching this tale of two surveys develop over the last few months, knowing that there is an upward bias in the Establishment Survey nonfarm payroll number. Given that we are looking at a recessionary environment, we expect to see the two surveys converge to tell the same story some time in 2023.

About the Author

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Anna Rathbun serves as the Chief Investment Officer for CBIZ Investment Advisory Services. Her tenure with the firm has spanned economic and market research, portfolio construction, and creating insights in investment themes to share with the investment community. Anna began her career in investments at Wellington Management, and subsequently, Harvard. She has served as a Managing Director for a registered investment advisory firm where she specialized in alternative investments. She is a graduate of Harvard University with a B.A. in Economics.

For more information visit: www.cbiz.com/retirement

[1] Rosenberg Research

Investment advisory services provided through CBIZ Investment Advisory Services, LLC, a registered investment adviser and a wholly owned subsidiary of CBIZ, Inc.

The information included in this update is provided for informational purposes only and should not be construed as investment advice. The views expressed are those of the author based on the data available when this update was written and are subject to change based on market conditions or other factors. CBIZ Investment Advisory Services, LLC disclaims any liability for any direct or incidental loss incurred by applying information supplied in this update. Please contact your financial representative with any questions pertaining to the information in this update.

A Tale of Two Surveys: The U.S. Labor Markethttps://www.cbiz.com/Portals/0/Images/Article Images/2022_PTET_Update_JBrower_CBIZMP_Hero_Image.jpg?ver=0b5DzaaqQVMllQExUrV83g%3d%3dhttps://www.cbiz.com/Portals/0/Images/article_thumbs/AccountingAdvisory_0_650_-1801007934.jpg?ver=74EXfFqEXGUnFmGs8tKkDw%3d%3dBy way of background, the “Establishment Survey” is a representation of hiring and layoffs from the perspective of businesses, and the “Household Survey” is the perspective of the work force itself. 2022-11-09T17:00:00-05:00By way of background, the “Establishment Survey” is a representation of hiring and layoffs from the perspective of businesses, and the “Household Survey” is the perspective of the work force itself. Regulatory, Compliance, & LegislativeAgribusinessApparel & Consumer ProductsAuto DealersConstructionFinancial InstitutionsGovernmentHealth CareHospitality & EntertainmentIndividualsManufacturing & DistributionNot-for-Profit & EducationOil & GasPension & Investment ManagementPrivate EquityProfessional ServicesReal EstateRestaurantsRetailTechnology & Life SciencesTransportationInvestment AdvisoryRetirement Plan ServicesYes