On today’s show we are looking at the underlying data that is being used as central in the narrative about the health of our economy and the flight against inflation.
The message out of the White House and the Fed is that the economy is strong, too strong even. Look at all the strong employment numbers.
Each month we keep hearing how we have a hot jobs market. Interest rates have to go up to fight inflation and the number of people entering the job market is indicative of a hot economy.
The fact is, if you look through the history of jobs reports you see that there is a consistently large discrepancy between the headline number that is reported and the subsequently revised numbers.
The headline number catches the headlines and that’s what sticks in people’s memory. Additionally, we see policy makers like the Federal Reserve setting interest rate policy based on those headline statistics.
But then those numbers get revised which means they were wrong. Decisions are getting made based on bad data.
How wrong do you ask?
Well, the March 2023 headline report was for 236,000 jobs created in the month of March. That was later revised down by 71,000 jobs. In February, the report was for 326,000 jobs. That was later revised down by 78,000 jobs to 248,000 jobs. The January number was revised down by 45,000 jobs.
I don’t want to mislead you. The corrections are not always downward revisions. The bureau of labor and statistics has been wrong in both directions. During the pandemic, they mis-reported the numbers of job losses by hundreds of thousands.
The problem is that interest rate policy is being set on the basis of a flawed model of inflation.
