The Fed, Fed Watchers and Reality: The February Jobs Report

By at 10 March, 2023, 11:15 am

by Raymond J. Keating –

When the Federal Reserve gets deep into the business of trying to manipulate the economy by engineering a so-called “soft landing” in its battle with inflation, many things get turned on their heads. In particular, good economic news often gets viewed as bad, and vice versa. That’s especially the case with jobs reports, as the Fed operates under the mistaken notion that growth, including job growth, causes inflation.

So, while struggling to fight off mistaken takes by the Fed and Fed watchers regarding inflation, let’s consider the latest employment report from the U.S. Bureau of Labor Statistics.

Solid Data

In February, the establishment survey estimated that nonfarm payroll employment increased by 311,000. Meanwhile, the household survey pointed to job growth of 177,000.

It’s worth explaining, as we have in the past, the key differences between these two surveys:

The establishment survey is a survey of nonfarm businesses, such as factories, stores, offices, etc., and provides data on employment, hours worked, and earnings. Excluded from the establishment survey are agricultural workers and unincorporated self-employed. In addition, there is a lag in counting new firms and firm deaths, which the survey attempts to make up for via various methodology adjustments. Also, the establishment survey double counts workers with more than one job.

The household survey, which as suggested, surveys households to gather employment, labor force and unemployment data. It is a broader measure of employment, as it includes the self-employed, agricultural workers, people who are unpaid family workers in family businesses, individuals working in private households, and people on unpaid leave. The self-employed factor and weaknesses in the establishment survey means that the household survey tends to better capture startup and small business activity.

Finally, the household survey tends to be more volatile from month to month compared to the establishment survey. Over the longer run, the two surveys move in the same direction, but again, there can be differences month to month.

So, it makes sense to look at the results – monthly numbers and trends – from each survey. And while the media and others talk mostly about the establishment survey in terms of job gains or losses for a month, my preference leans more to the household survey taking precedence due to startup and small business factors.

Also, the household survey gives us two critical measures of the labor market – the labor force participation rate and the employment-population ratio.

The household survey showed a healthy jump of 419,000 in the labor force in February. The labor force participation rate inched up from 62.4 percent to 62.5 percent. Meanwhile, the 177,000 gain in employment left the employment-population ratio unchanged at 60.2 percent.

Bottom line: This amounts to a welcome, solid jobs report for February. As for how the Fed and Fed watchers read it, well, that’s anyone’s guess these days. In the end, it pays to focus on the data, trends and common sense.

Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council. His latest book is The Weekly Economist: 52 Quick Reads to Help You Think Like an Economist.


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