May seems to be another month in which almost all economic indicators, except employment data, point to a slowdown in growth. The two types of employment data are "fighting" and the non-agricultural data is completely meaningless?

The U.S. Bureau of Labor Statistics (BLS) released the latest employment data last Friday. According to the report, the total number of non-farm payrolls, adjusted for seasonal factors, increased by 339,000 in May, much higher than expected. The unemployment rate rose slightly from 3.4% to 3.7% month-on-month.

Headlines in the US mainstream media proclaimed the data as evidence of very strong job and economic growth. Politico reported that the latest jobs data demonstrated "the remarkable resilience of President Biden's economy," and National Public Radio (NPR) praised the "red-hot" job market.

Yet May looks like another month in which nearly every economic indicator, except the jobs data, points to slower growth. The Philadelphia Fed’s manufacturing index is in recession territory. So is the New York State manufacturing survey. Leading indicator indexes for the economy look worse. The yield curve points to a recession. Even the Fed staff, who are generally optimistic about the economy, predict a recession in 2023. Personal bankruptcy filings rose 23% in May. Temporary employment fell year-over-year, which typically signals an impending recession.

So how is one supposed to reconcile all these signs of a slowing economy with yet another jobs report that claims the job market is at its best in decades?

Institutional surveys and household surveys diverge sharply

Well, a lot of the jobs data isn’t actually very good. The headlines focus on the so-called establishment survey, which is a survey of employers that shows only the number of positions, not the number of employed people. The household survey, on the other hand, does show the number of employed people.

Household surveys for the past two years have shown job growth much slower than agency surveys.

Specifically, since 2022, the establishment survey and the household survey have stopped following similar trends, and a considerable gap has developed between the two surveys. In fact, over the past two years, there has been a 2.2 million gap in the number of new jobs reported by the two surveys:

For May, the institutional survey showed a month-on-month increase of 339,000 jobs, while the household survey showed a decrease of 310,000 jobs. The gap is more than 600,000. The figure below shows the month-on-month difference between the two surveys (grey is the institutional survey, blue is the household survey).

Reasons for the gap

The growing gap between the institutional and household surveys may be partly explained by the fact that the response rate of the institutional surveys has declined in recent years, suggesting that the reliability of the institutional survey results as an indicator of the overall economy is declining. At the same time, the response rate of the household surveys has not declined significantly.

Another factor is that the establishment survey does not track self-employed workers, who have been an important influence on employment trends over the past three years. Self-employment collapsed in April 2020, but surged to an all-time high in April 2021. By 2023, self-employment had collapsed again, with year-over-year growth in self-employment falling 6.5% in May. Excluding the COVID-19 lockdown, this was the largest year-over-year percentage decline since the Great Recession officially began in December 2007.

Is the optimistic job market fake?

Overall, the establishment survey shows that the total number of jobs has increased by 3.7 million since the previous peak in March 2020. The household survey shows that total employment has increased by only 1.9 million during the same period. The gap amounts to about 1.8 million.

The fact that two different employment reports tell two different stories has some economists skeptical of the media's optimistic reports on the job market. Economist Ian Shepherdson noted:

“This is the strangest jobs report in some time… The data so far suggest stronger economic growth than most other monthly data suggest. The downward trend in job growth since the summer of 2021 now appears to have flattened, but this could change as the data are revised.”

Economist Paul Ashworth said:

“The stronger-than-expected 339,000 nonfarm payrolls in May managed to grab the headlines. But not all jobs reports were positive. The employment measure from the household survey fell sharply, the unemployment rate rose to a seven-month high of 3.7%, and the average workweek fell slightly to a three-year low.”

In addition, the year-over-year increase in average hourly earnings in May, based on the household survey, fell to its slowest pace in 25 months. If the Cleveland Fed’s “Nowcast” inflation forecast for May is correct, May will be another month of falling real wages.

No doubt part of the reason for this confusion and contradiction is that “employment” is not homogeneous, and employment trends can vary widely across industries and regions.

But as the Austrian School of Economics has long pointed out, the impact of money on the real economy is non-neutral. The current trend of rapidly decelerating money growth will have a very different impact on the entire economy. And institutional surveys are particularly incapable of capturing these trends in real time.

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