The LAO's latest report, "Newest Early Jobs Revision Shows No Net Job Growth During 2023," reveals a stark contrast between previously reported job gains and actual employment figures in its labor market. The revised data reveals that California lost 32,000 jobs from September 2023 through December 2023, contrasting sharply with preliminary monthly reports that claimed an increase of 117,000 jobs during the same period.
In other words, the LAO report has found that California saw virtually no net job growth, with a minimal overall increase of just 9,000 jobs throughout 2023.
According to the report, it is essential to understand the revision process to comprehend the depth of these discrepancies. Monthly state employment figures, derived from the Current Employment Statistics (CES) survey, are subject to annual benchmark revisions by the Department of Labor's Bureau of Labor Statistics (BLS). These revisions align the monthly CES estimates with more reliable administrative data from state Unemployment Insurance programs. (Related: California plans to give unemployment benefits to ILLEGALS, while their own citizens foot the bill.)
Researchers at the Federal Reserve Bank of Philadelphia initiated the publication of quarterly "early revisions" starting in 2021 that recognize the delays inherent in this process. Based on the same underlying data as the annual benchmarks, these revisions provide more timely updates on employment figures. The latest LAO report utilizes these early revisions to present a more accurate picture of California's job market.
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BLS DATA: U.S. payroll gains are also not as robust as reported
The revelations about California's labor market are not isolated. BLS in June, the Quarterly Census of Employment and Wages (QCEW) suggests that payroll growth in the United States last year was significantly lower than previously reported. The QCEW data – covering over 95 percent of U.S. jobs – shows an average monthly increase of approximately 190,000 jobs. In contrast, monthly employment reports from the BLS indicated an average payroll growth of around 250,000 jobs per month.
"There’s a pretty good chance that the establishment survey has been really overstating the condition of the labor market," Barry Knapp, founder of investment strategy firm Ironsides Macroeconomics, said of the monthly payroll numbers. "The job market is weaker than the Fed thinks."
Anna Wong, the chief U.S. economist at Bloomberg Economics, made a similar statement: "The Fed could be late to cut rates – cutting only when the labor market already is far into a downward spiral."
Moreover, a subsequent monthly employment report, which showed payroll growth of about 185,000 for May, following an increase of 175,000 in April, based on a Bloomberg survey, is derived from a study of approximately 119,000 businesses and government agencies. However, the QCEW data, based on unemployment insurance tax records from over 12 million establishments, presents a different narrative. The payroll numbers are typically revised each February to align with the QCEW data, with initial revision estimates provided in August.
Both Wong and Knapp attribute much of the potential overestimation in payrolls to adjustments made by the BLS to account for the net effect of business openings and closures. The BLS employs a "birth-death model" to estimate these flows, which may not accurately capture the dynamics of the current economic environment.
"The labor market saw a turning point sometime in the second half of 2023," Wong said. "Business closures surged, while new business formations slowed sharply." Meanwhile, Knapp stressed that small businesses are particularly susceptible to high interest rates, making them more likely to close, a factor that the monthly payroll survey might not fully capture.
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