What Are They Missing?

Last week the U.S. Labor Department reported that 339,000 nonfarm payroll jobs were added in May.

This blew away forecasts by Wall Street economists that had predicted 190,000 new jobs would be added.

However, a more detailed look at the numbers raises some question as to how much comfort anyone should take that this is an indication that all is well with the economy.

For starters, despite the fact that 339,000 jobs were supposedly added, the unemployment rate actually rose to 3.7% from 3.4% in April.

That is the highest unemployment rate since October, 2022.

How can payrolls go up at the same time that the unemployment rate increases?

Normally that occurs when more people state they are entering into the workforce and are looking for employment. The unemployment rate only considers those actively looking for work. 

If that many new people are suddenly now looking for work that might be an indication that households are being squeezed by inflation and a spouse who was not working has decided they now need to work to make ends meet.

The Labor Department data also suggests another explanation.

While payroll jobs were up by 339,000 in the month, the number of individuals who are reported as self-employed went down by 412,000.

Notice that the number of full-time and part-time workers did not change at all over the last month.

Credit: https://twitter.com/FrogNews/status/1664682674902925312

If you can't find enough work as a self-employed carpenter, and have to take a job at Home Depot, that would show up as an increase of one payroll job but really has no effect on total employment.

The same for a self-employed landscaper who calls it quits and ends up working at a nursery.

This is a troubling trend as there has been a loss of about 700,000 self-employed workers since February.

This decrease in self-employed workers may also explain why productivity is falling.

People who work for themselves or at small businesses tend to work harder than simple payroll workers.

They have a greater incentive to do so.

Labor productivity has fallen for five quarters in a row.

We are experiencing the worst period of productivity since the measure was first tracked beginning in 1948.

The other times we have seen anything like this have been during recessionary periods.

Another interesting insight in looking at the employment numbers is the breakdown between foreign born workers (those employed who were not born in the United States) and native born workers.

In May, the number of foreign born workers increased by 297,000. However, the number of native born workers decreased by 369,000.

There are 161 million full-time and part-time workers in the United States according to the latest report. 30.3 million (19%) are foreign-born. 130.7 million are native-born.

However, there were 131 million native-born workers back in September, 2019 meaning that we still have not gotten back to pre-Covid levels of employment for these workers.

Source: https://www.zerohedge.com/markets/native-born-workers-tumble-369k-foreign-born-workers-soar-record-high

Joe Biden wants to take a lot of credit about the economic recovery since Covid.

There have been about 3 million new jobs created since the Fall of 2019.

However, all of those jobs have effectively been filled by foreign-born workers when you consider the data.

Part of this is undoubtedly due to the aging of native-born workers who are retiring from the workforce.

However, it does raise questions as to the quality of those jobs and the extent to which illegal immigration is affecting the U.S.job market.

You also can't help but wonder about the quality of the data that underlies all of this reporting.

This data is driving big decisions regarding Federal Reserve policy, interest rates and the stock market.

However, look at the recent revisions that have been made in the data related to real hourly wages.

The Fed has been raising interest rates in large part to tame what is supposed to be running too hot  driven by high wage inflation.

However, look at the latest revisions that have been made to that data related to the fourth quarter, 2022 and first quarter, 2023.

It was previously reported that real hourly compensation rose .7% in the fourth quarter, 2022.

This was just revised to -4.7%.

That is quite a MISS!

They were only off by over FIVE percentage points.

The first quarter, 2023 number was revised from -.3% to -1.7%.

I don't know if they are using unreliable source data or there is a political agenda to deliver news that is favorable.

It is a fact that the original report gets all the news attention. The revisions are never mentioned

You do have to wonder whether something is amiss in all of this.

Meanwhile the decisions being made based on this data are affecting every part of the economy including mortgage rates, housing prices, car loan rates and your 401(k),

Do they really have any idea of what they are doing if the numbers are moving around like this and there is this much contradictory data?

Remember when all of the experts were telling us that inflation was transitory?

What are they missing now?

Do they have a clue?