The Indicator from Planet Money - What you need to know about the jobs report revisions

Starting point is 00:00:00 NPR. This is the indicator from Planet Money. I'm Derrym Woods. And I'm Waylon Wong. We are still processing this shockwave of President Trump firing the Commissioner of Labor Statistics, Erica McIntarfer, last week. The jobs report that her agency puts out is packed with some of our favorite indicators. It's the only report we haven't air horn for.

Starting point is 00:00:34 It's true. And Trump claimed without evidence that downward revisions showing jobs numbers were lower than initially reported means the numbers are rigged. As we showed yesterday, that's not true. There are too many layers of civil servants involved for rigging to take place without that becoming public knowledge. But it is true that the downward revisions were large. So today on the show, how revisions to the jobs numbers happen, what the process is, and what last week's revisions say about the economy. Here on The Indicator, we have announced the jobs numbers right from the show's beginning.

Starting point is 00:01:17 We knew it had to be jobs. Once a month, we put aside the stock market. Who cares? 254,000 jobs. 187,000 jobs. Man, we love a jobs number around here. And whether you're a cleaner or a carpenter

Starting point is 00:01:37 or even if you're looking for work, the jobs report is like a mirror up for most people's personal finances. We do need to caution, though. The jobs report is just the first pass. The numbers can change a lot like we saw on Friday. The BLS made a big downward revision to its previously reported job numbers. The air horn turned into a sad trombone. Yeah, and you know, revisions are a big part of the jobs report. They happen all the time. Yes,

Starting point is 00:02:06 it was larger than normal, but every single month, the previous couple of months gets revised. And then there's a big adjustment annually too. That got us asking why exactly do revisions happen? Bill Beach was the commissioner of labor statistics right before Erica McIntarfer. He served under both the first Trump administration and the Biden administration. The basic reason is that we get additional information. So where does an information come from? Well, the jobs numbers are derived from a survey. So there's like, I don't know, 12 million firms in the United States.

Starting point is 00:02:40 And we're doing a survey of about 600,000 at most. and about 68% turn their surveys in the first month. It's not a bad response rate, but you want more than that. So this kerfuffle basically started from business owners and HR managers handing in their homework late. When late homework meets a conspiratorially minded president, heads will roll. Stepping back, you know, part of the whole magic of statistics is that you can approximate based on just a small sample. You can extrapolate. So I'm curious about why the latecomers might change the numbers in one direction.

Starting point is 00:03:16 Like, shouldn't the overestimates be canceled out by the underestimates? Yeah, Bill says there might be underlying issues that particularly affect the stragglers, the companies that don't respond to the survey in the first month. A lot of times the smaller businesses are the late returns. And if you have a thing affecting small businesses rather than large businesses, for example, the tariffs might be affecting small businesses or banks. Bad weather might be affecting small businesses. Who knows? I mean, there are many factors. Then that additional information is important to include because small businesses really do employ a lot of people. And about why the specific months revisions were so high, Bill says it's the kind of thing that is a little foggy in the moment.

Starting point is 00:04:02 Now, honestly, most revisions are not this big, but these are not unprecedentedly large revisions. When I was commissioner, we had much larger revisions. And it was because we were, we were coming into or going out of COVID. Okay, that's a pretty good obvious reason why you would have revisions. And people didn't complain about the size of the revisions. It was obvious. What's lacking here is the reason. And once the reason becomes apparent, I think people will begin to say, oh, yeah, that makes sense. As Bill said, a possible reason for the big revisions could be that tariffs are affecting smaller businesses more than larger businesses. You also have the immigration crackdown. Yeah, it could mean those smaller companies aren't hiring as much. It could also be the

Starting point is 00:04:41 that the companies that aren't responding are actually going out of business. Bill also points to state and local government. State and local government reported late, and that caused a big change. I think the biggest reason is they were all running out of COVID-era money. It's strange that money would still be around. And they had used that for hiring purposes for years and years and years. And now they wasn't there, and so they weren't hiring as much. So there are plenty of reasons why the revisions might have happened.

Starting point is 00:05:10 A lot of reasons, but aren't there always reasons why this time is different? Like, there's always something going on, maybe a hurricane or new tax cuts. If you look at the technical notes that the Bureau of Labor Statistics, the BLS puts out, the first round of jobs numbers has a 90% confidence interval. That means you can be 90% confident that the actual number is within a certain ballpark. And for the first release, when it comes to the jobs report, that ballpark is roughly plus or minus 136,000 jobs. Anything less than that number means you can't even be sure any jobs are added.

Starting point is 00:05:49 Okay, that's really big. That's a big number. True. That said, by the third month, when you get those revisions in, after more businesses have responded, the precision increases. Now, this gets us to the question we've heard a lot recently, which is why even publish the imperfect numbers? Would it be better just to hold the data until the numbers are more solid? The data need to come out on a regular basis. It's this punctuality of the data. Every month, we get the GDP report, the unemployment report, the jobs report, and we can see trend.

Starting point is 00:06:18 The trend's really the thing that we're looking at. Is the economy getting better? Is the economy getting worse? And then I can make my changes. I can say, well, I'm not going to change my job. Things look risky. Bill believes a lot of people who use the job's numbers would prefer imperfect over no data at all. People have built their businesses around them.

Starting point is 00:06:37 banks build decisions around them. You know, everyone wants these data, whether they're plus or minus, at the same time. And it gives you ability to work in this crazy world. One of these banks is Wells Fargo. We spoke to a senior economist there, Mike Paglisi. In my group, in my team, right, we are writing on the U.S. economy and trying to figure out where it's going. And what that means for interest rates and consumer spending and business investment. and what the Fed is going to do and a whole host of different questions that we and our clients

Starting point is 00:07:14 have an interest in knowing. Mike's team's reports could influence how much money Wells Fargo lends out to people and businesses. And he says the jobs numbers are central. Because when you think about the U.S. economy at a very high level, it is predominantly driven by consumer spending. And for the average person, where does most of their spending power come from? it comes from their job. We asked Mike, though, whether he would prefer the jobs numbers were withheld until they were

Starting point is 00:07:42 more accurate. I think there would be pros and cons. I mean, I think if I had to come down on it, I would probably say, what you want to do is get the data early like we do now and just be cognizant and aware that you might end up with larger revisions. The first estimates of jobs numbers have actually been getting more reliable over time on average. That's through better statistical techniques. But could the system be improved further? We asked Bill Beach, why not automate the job support, you know, take information from other government

Starting point is 00:08:16 departments or do things more digitally? Now you're getting into it. So the budgets of the statistical system, BLS in particular, have not really changed at all for years, despite the big inflation that's occurred, despite all the changes in the world. Modernization costs little money. And that's Congress is not supporting us on right now. On yesterday's show, we learned that the BLS had faced about a 10% budget cut since 2009 when you account for inflation. That's less money for those civil servants who painstakingly call up hundreds of businesses every month reminding them to hand in their homework on time.

Starting point is 00:08:56 This episode was produced by Corey Bridges with engineering by Quasi Lee. It was fact-acted by Sierra Juarez. Kaking Cannon edits the show and The Indicator is a production of NPR.

The Indicator from Planet Money - What you need to know about the jobs report revisions

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