Stunning Job Numbers May End Up Being Just OK

The labor market data is full of conflicting signals, but the big picture is that the US economy is in pretty good shape. That’s worth celebrating, irrespective of what the “good news is bad news for interest rates” crowd tells you.

Consider the hodgepodge of data released by the Bureau of Labor Statistics on Friday. On the positive side, the so-called establishment survey suggested that employers added a whopping 272,000 jobs last month, exceeding all 77 forecasts compiled by Bloomberg. Average hourly earnings ticked up 0.4% from the previous month, the strongest reading since January (more on that later).

But in addition to the establishment survey, the government also asks a smaller sample of households about their inhabitants’ work status. That poll showed that the unemployment rate rose to 4%, from a previous 3.9%, and employment (according to a measure adjusted to conceptually match payrolls) actually fell by 456,000. The contradiction helps explain why some observers see an economy that’s running “too hot” and others see an economy with emerging “cracks” that could be warning of a recession. I tend to fall somewhere in the middle.

diverging data

The Bureau of Labor Statistics makes no secret of the fact that tracking the labor market is hard and imprecise, and that’s especially true in today’s economy. A surge of immigration in recent years has added to the labor supply in hard-to-measure ways, and an explosion of new business creation during the pandemic has also complicated the task of building a representative sample. On top of all that, a wave of technology growth and government investment may boost productivity in ways that could change the way we define the level of healthy and sustainable payroll and wage growth.