The True Pace of Job Creation (Chart of the Week)
Our featured charts from the EPB Weekly Economic Briefing / Week 36
The true pace of job creation is difficult to measure at any single moment. Multiple surveys, monthly revisions, and annual benchmark revisions cloud the picture.
Still, it’s important to sift through the haze and use all the information available to arrive at the best possible answer.
Over the last three months, the establishment survey of employment averaged a pace of 116,000 jobs created, and the household survey of employment averaged 117,000.
Interestingly, while these two employment surveys have diverged in recent months, their three-month averages are now closely aligned.
We know that the establishment survey of employment has been consistently revised lower over the past year, and this is quite common at Business Cycle turning points.
Recently, the establishment survey data were benchmark revised based on the QCEW report, and the findings revealed that job creation was overstated by 818,000 in the 12 months ending March 2024. However, these are still not the final revisions as we do not have the monthly breakdown of this data, only the total revisions over the 12-month period.
Assuming that the 818,000 job overstatement was equally distributed over the 12 months, that would imply roughly 68,000 jobs per month.
It’s best practice to use both the establishment survey data and the household survey data as we do in the EPB Coincident Employment Index since both are reliable metrics.
A 3-month average of the household survey job gains and the establishment survey job gains adjusted for the 818,000 benchmark revision show the pace of job creation to be 117,000, with a trend that has cooled materially over the past 18 months.
If we use the same method, averaging the revised nonfarm payroll data with the household employment data but using a 12-month average rather than a three-month average, we can see a very clear trend in the pace of job creation, down to 76,000 as of August.
Further, there was a sharp drop-off in job creation at the start of 2024.
The economy needs roughly 125,000 jobs per month to maintain a flat unemployment rate, and it’s becoming increasingly clear that the pace of job creation is insufficient.
This method shows average job creation of 321,000 in 2022, 179,000 in 2023, and 95,000 so far in 2024.
The problem for the Federal Reserve, which is now clearly behind the curve, is that this labor market softening will not magically stop, particularly because the Leading Employment Indicators have continued to slide, reaching a new low in August.
These charts, analysis, and more were featured in the EPB Weekly Economic Briefing, Week 36.
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