Federal Government Says Businesses Hired Over 800,000 Fewer People Than First Predicted

(KNSI) – The Bureau of Labor Statistics says it overestimated new hiring by 818,000 nationwide from April 2023 to March 2024.

KNSI News spoke with St. Cloud State University Economist King Banaian about the causes of the discrepancy. He says the new figures represent a much more complete data set than what is used to report the initial estimates.

“The monthly payroll data that we receive is based on a survey, a collection of various employers that they talk to monthly. The data they use for the benchmark revisions is a census of all employers, which they get from tax records.”

BLS has methods that attempt to predict how many businesses are being created or are closing and their effects on employment. These methods are plugged into the monthly estimate until the full census can be completed. That is likely where the errors have been. The birth-death model is its official name.

Banaian explains, “They guess at how many new firms were created, how many old firms went away. They’re trying to make an adjustment. They over adjusted for new firms in 2023 and in, so far, in 2024.”

Without the birth-death model, BLS would have no way of approximating the effects of a new restaurant going up on a corner in rural communities like Belgrade or Brooten. Banaian says he doesn’t know why the current model is overestimating hiring but believes higher interest rates could be a factor. A Fed funds rate of over 5% hadn’t been seen since 2007 until inflation forced the central bank to hike in 2022 and the first half of 2023.

The 818,000 headline number will catch your eye, but the number is actually worse than that. Each monthly estimate is revised twice. The average mean revision in 2023 from the first estimate to the third was -30,000 jobs. Those new estimates get much less attention than the initial figure. If you add those in, the difference from the first release to where we stand today is total hiring at nearly 1.2 million less than commonly believed, or a downward revision of around 33%.

Only three months from April 2023 to March 2024 were revised higher. That trend doesn’t show any signs of slowing down. The last monthly estimate that was subjected to a double revision was this May. Initially reported at 272,000, the latest BLS estimate is 216,000, or a downward shift of 56,000 hires.

Banaian says it is an important reminder that the figure released on the first Friday of each month falls within a wide range.

“In July 2024, the estimate is [that] there was 114,000 jobs added. The 90% confidence interval takes you to a negative 20[,000], all the way out to a positive 240[,000]. That’s a really different set of numbers, right?”

Lately, the final number has come in at the lower end of the range rather than the higher end. A properly functioning statistical data set would see the figures distributed more evenly around the mean.

Wednesday’s revisions will be finalized as more data is analyzed and further adjustments are possible. They will be announced in February.

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