Is the BLS Cooking the Books?

Last week Zero Hedge achieved the impossible, they managed to make a report from the Philadelphia Federal Reserve go viral.

The topic in question? How many jobs did the US economy actually gain in Q2 of 2022: 10 thousand or 1 million? Last night Tucker Carlson took up the torch as well, claiming that the Bureau of Labor Statistics (BLS) is cooking the books for the Biden Administration. Given the amount of attention this esoteric (and in spite of the viral nature of the story, it is esoteric) argument is getting, we think it’s worth addressing what is going on.

To begin, we do believe that the US labor market is clearly showing signs of a slowdown and we have been vocal about our expectations of a recession in 2023. We just doubt that job growth was that weak last Spring.

The Philadelphia Fed isn’t usually a primary source for data on the labor market. Off the top of our heads we can’t ever remember reading a labor market report from them in the past. The two reliable and time-tested sources are BLS surveys of large businesses (the establishment survey) and surveys of individuals (the household survey).

Given that the Philadelphia Fed just started publishing results from its own internal model, meaning there isn’t much of a track record to go on, we’d say it’s probably right to take this report with a grain of salt. Theoretically, everything about this model might be sound, but even sound models often clash with reality. For example, the ADP model has never lived up to its hype.

Also keep in mind that there are twelve Federal Reserve banks across the US. If all of them were to do similar proprietary reports on the labor market the results would probably have a wide range of outcomes, so this lone report shouldn’t be seen as representative.

So what did the Philadelphia Fed find? Using data on 33 states plus the District of Columbia from the Quarterly Census on Employment and Wages, a lagging report that is often used to make revisions to overall payroll data, they believe the payroll gains that were officially reported in Q2 were significantly overstated. Instead of 1.05 million jobs the US only added 10,500. That’s a downward revision of 99%!