The labor market has crumbled way more than the Fed thinks

Bloomberg economists warn that official data could overstate US employment by 1 million people this year

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Good morning investors,

The Bureau of Labor Statistics reported that the month of April ended with 8.1 million job openings, and that employers added 5.6 million people to their payrolls.

The report suggests the jobs market continues to soften as expected, which Fed officials will factor in as they weigh their next policy move.

But a team of economists made the case that the status quo may not be so solid.

Rethinking labor market strength

If we take Tuesday’s jobs report at face value, a key measure of the labor market has returned to “normal.”

According to the Bureau of Labor Statistics, the number of job openings in April returned to the pre-pandemic norm of about 1.2 per person.

That’s down from more than 2.0 during the spring of 2022.

To some, that suggests the Fed can effectively put the jobs market in the “soft landing” camp. 

In a scathing write up the same day, however, Bloomberg Economics warned that official data — and therefore, policymakers — far overshoot the strength of the labor market.

The central bank, in turn, may already be late on easing policy.

Here’s Anna Wong, Bloomberg’s chief economist:

“Several Fed officials seem to believe the labor market is still tight, but we estimate, based on more comprehensive measures, that monthly nonfarm payrolls prints likely overstated job growth by 730k last year — with hiring maybe even falling below zero in October.”

To Wong, official payroll prints don’t account for the spike in business closures and the decline in new business formations.

Her team estimates the true pace of job growth is below 100,000 per month — less than half of the official 242,000 three-month average.

The math here suggests the Bureau of Labor Statistics will overstate employment by more than one million by the end of 2024. 

Are Bloomberg economists or the government more credible here?

I’ve lost track how many times official data has been revised after the fact this last year, so unfortunately my money is on the former. 

If Wong’s analysis is even partially accurate and the labor market is significantly weaker than the Fed believes, a recession could be table stakes by the end of the year.

Think back to Econ 101. A deteriorating jobs market means less consumer spending, which could drag on economic growth and eventually lead to a downturn. 

All the while, inflation remains top of mind for everyday Americans.

While the rate of price growth slowed to 3.4% in April, the cumulative change in prices hovers just under 20% since January 2021, as Axios reports. 

In any case, markets could swing based on the Friday jobs report.

The real news could come months later with a government revision — or another report from Wong’s team.

Do you consider Bloomberg economists or the official data more credible? Hit reply to this email or let me know on X @philrosenn.

*At a glance:

*Data as of Tuesday 7:30 p.m. ET

Elsewhere:

  • Politics are shaking markets. Stocks in India cratered as Prime Minister Modi's party may lose its majority, while Mexican peso tumbled against the dollar after Sheinbaum’s election victory. At the same time, South Africa’s currency turned sharply lower as the country’s Congress shifted. (Reuters)

  • Big Tech stocks have shrugged off high interest rates thanks to the jet-fuel of AI hype. Nvidia, Microsoft, Apple, and Alphabet continue to climb higher, but the same isn’t exactly true for the majority of the S&P 500. (WSJ)

  • Middle-class Americans are struggling financially. A new survey found two-thirds of respondents say they face economic hardship and don’t anticipate it changing. And, a large share of households making over $150,000 still worry about bills. (Bloomberg)

Rapid-fire:

  • Oil prices continue to tumble, dragging energy company stocks with them (WSJ)

  • Shares of the cruise operator Carnival jumped 5.8% as the company adjusts strategy in Australia (Investopedia)

  • Former Treasury chief Larry Summers says inflation isn’t on a convincing path lower (Bloomberg)

  • How Roaring Kitty could eventually become a billionaire (CNBC)

  • Global central bankers appear ready to ramp up their US dollar reserves (FT)

  • Short sellers are in danger of extinction from the stellar bull market (Bloomberg)

Last thing:

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