The monthly employment report is consistently one of the most watched data releases. But what does it really tell us? Yahoo Finance's Julie Hyman, Seana Smith, Josh Schafer, and Myles Udland debate whether or not the jobs report is useless.
Video Transcript
- Well, in a world of misinformation, disinformation, corruption, and vested interest, data is one of the greatest assets we have. It is, in theory, unimpeachable. It tells a story free of biased opinion or motive. It simply is.
But in the world of economic and monetary policy, it's still king. Policymakers rely on it in its totality to make decisions that impact all of us. For the Federal Reserve, the credo has long been that policy is never on a pre-set course, it adapts to changing information.
Now, the jobs report and its headline number has cemented itself as the statistic that stands out from the crowd, summarizing the health of the world's biggest economy at a glance. Now, it's not meant to be a magic number, but it certainly has an outsized importance in shaping sentiment and changing decision making as well. But not all jobs are created equally. What kind of employment are we creating? What is the true rate of unemployment? Does any of this actually matter?
And if the jobs report is just a blunt instrument guiding monetary policy, is it useless? Well, joining us now for the discussion, Yahoo Finance's Julie Hyman, Myles Udland, Seana Smith, and our very own, Josh Schafer. Julie, over to you.
JULIE HYMAN: Thanks so much Michelle. We're feeling very existential here apparently at Yahoo Finance. Why are any of us here? Why are we even talking about the jobs report? And that's what we want to discuss.
And I sort of have been thinking about this in two ways. One is the jobs report accurate? For lack of a better word. Does it actually give us a picture of what's going on in the job market? And secondly, is it even the right number for the Fed and the market to be zeroing in on?
And so to sort of take the accuracy question first, just one thing that I've been thinking about is the revision to the job report, which we get every month. We get the payrolls number every month. It is now beaten expectations for 14 straight months, which tells you something about the ability of economists to forecast this thing. But every month, it gets revised. And the amount by which it gets revised varies pretty widely. We've seen it get revised lower as of late but again, that's very volatile.
And I was even looking back at previous years and the sort of average revisions that we see on an annual basis, which, again, monthly-wise are really divergent. But overall, we have seen bigger revisions in more recent years than we had seen sort of pre-pandemic. So that's just taking sort of the accuracy piece of it. But there are a lot of different components of it. Seana, you're looking at what I think--
SEANA SMITH: There are so many different components of it. And I think this report in particular is so hard to kind of figure out just in terms of how the Fed is looking at it, what it could mean for policy here going forward. You mentioned that headline number, a massive beat. Once again, the 14th like you said in a row. But when it comes to unemployment, that did tick higher up to 3.7%.
So I was taking a look at labor force participation and more specifically what we're seeing in prime age workers. So that's a workers between 25 and 54 years of age, and that ticked higher, went from 83.3% to 83.4%. And I bring that up just because that might be one of the explanations in terms of why we did see the unemployment rate tick higher while we did get that blowout beat on the top line number on that massive of more than 300,000 jobs created last month. So certainly, more people entering the workforce but maybe they haven't found that job yet. So that's why we did see that unemployment number tick higher.
But I think that this is almost a head scratcher in terms of what exactly this means for the Fed, how the Fed should even be looking at this data. Because like you said, Julie, so often, we've seen a number of revisions, and they're pretty significant when you take a look at some of those trends. So I think there's still a lot of debate about whether or not we should see a pause and then of course, if we'll see another rate hike in July.
MYLES UDLAND: Well, I was going to steal your point about participation, but we'll let that one lie. 83.4%, highest we've seen since 2007. Julie, you know what I'm going to say about the accuracy of it. And my question is going to be, do you have any better ideas for other data that we might gather?
JULIE HYMAN: In fact, actually, to that point, so last night I was in an event and I was sitting next to the head of Homebase, which is a company that provides software that basically does employee management, particularly for hourly workers. So instead of punching a time card, you would use this software. And he said to me he thinks that the way the government measures this is quite outdated. And I said to him, do you have a-- So OK, so what are you looking at then?
And he pointed out data from the likes of Indeed and ZipRecruiter as being a better way to gauge what's going on. And he said even more, look at those companies, see what they're doing with their own employees. Are they laying people off as ZipRecruiter has been doing? So that also-- I don't know if that's a better idea, but that's just a better idea that someone gave me.
MYLES UDLAND: So I think the reason why we care about any jobs report is ultimately because it is going to most likely determine what the Fed is most likely going to do next, and that's really all the market cares about. If you look at the market today, it is suggestive of a Fed that's likely to pause next month. I mean, look at the leaders in the market right now, regional banks. Kind of the Dow has been beaten down, it's been a laggard, and the Dow is outperforming today. So that kind of tells you what investors think, and I think we all know I'm an absolutist about the market is right and then we will figure out why they're right about what they're saying. So that's kind of my view on it.
And I think looking at the labor market in general, though, and trying to make sense of this report, I don't actually think it's that complicated. I think the reason economists keep getting the jobs number wrong-- they're always wrong. But the reason they're wrong on the low side is because people have been waiting for the economy to roll over for months and months and months, and today's jobs report shows it's still not happening.
JOSH SCHAFER: Well, and the word slowdown should probably stop being used as far as overall slowing down the job growth. I mean, it's the biggest number we've seen since January. You strip out January, it's the biggest number we've seen since August as far as monthly growth goes. So that was something interesting just today as I was looking at different commentary. I think people are starting to change that narrative a little bit.
But overall, I think a lot of people said you can take from this report what you want. You can make a lot out of the unemployment rate, you can make a lot out of wages coming down on a monthly rate compared to what they were last month. And you can then say, well, the Fed's getting a little bit of a win here, we're starting to see a slowdown. Or you can just look at the headline number and say, well, the economy is booming, the Fed should hike again. And it seems like a lot of people that were in that camp before today or still-- it didn't change camps. It seems like everyone's still in their camp that they were in yesterday, and that's sort of where we're sitting.
SEANA SMITH: Yeah, but whether or not that's validated, I think, is the other big issue here. Because Miles, like you're saying, that the jobs report is what the Fed does look at. But I actually questioned that, whether or not there's more emphasis on CPI now. The next inflation print that we are going to get right before that meeting, whether or not that matters more given the fact that this report, you can take what you want from it. To Josh's point, just in terms if you want to look at that rising unemployment number or if you want to look at that massive headline beat.
MYLES UDLAND: Well, I think for the last 15 months, it has been true that inflation data is more important, and I think it still is more important because we saw the move in Fed fund futures last week when PCE number came across. That was firmer than expected. I think 4.6% increase in core PCE over last year, so still more than double the Fed's 2% target on their preferred measure. Some Fed speak this week, kind of bumped it back. And we haven't seen a huge move in market expectations for the Fed based on jobs.
So yes, I think inflation became the new jobs report but ultimately, I think that the jobs report is where you get, let's say the simplest read on the economy's health. Because inflation is measuring a specific set of inputs and what you're paying for them. But how much people work and what they make while they work is most likely to have the largest impact on the overall story for the economy.
JULIE HYMAN: Well, and guess what? What they're making is not going up. It's not meeting inflation, right? And it's sort of stagnating if you look at those average hourly earnings. What I think-- and this is-- I guess sort of I'm channeling Myles to some degree here.
MYLES UDLAND: Look at this. Look at this.
JULIE HYMAN: Like, you could argue it's a lagging indicator, which most economists say it is a lagging indicator, and you can sort of quibble about what it actually tells us. But it's the easy-- there are two data points to me that are the easiest to relate to emotionally. One is the jobs report, do I have a job or not? Does the person who lives next to me have a job or not?
And secondly, am I paying more for stuff? CPI and jobs. Emotionally, those are the ones that resonate the most with us in our everyday lives. You can talk about PMIs, you can talk about all of these other--
MYLES UDLAND: Easy on the CMIs.
[INTERPOSING VOICES]
JULIE HYMAN: But they don't have that same sort of intuitive, relatable understanding that jobs and CPI do, right?
MYLES UDLAND: To you. No, I agree.
JULIE HYMAN: To me.
MYLES UDLAND: No, I agree.
JOSH SCHAFER: It's what people like to talk about.
MYLES UDLAND: Yeah, I think this is the reason why jobs matter because you can-- I mean, think about it in this framework to use the media example. If you're doing NBC Nightly News, can you put this in the A block? The answer is yes. You can't put PMI in the-- you shouldn't put PMI on the show ever in any circumstance. But you can say the labor market says X and you don't have to know anything about the economy to understand what the market-- not the market, what the report is trying to tell you.
SEANA SMITH: Yeah, exactly. And I also think we haven't even just talked about the number of job openings that are still out there that was over 10 million, the most recent report out there. So this whole supply, demand, imbalance of people out there, even if you're surveying who has a job, who doesn't have a job, I think the overarching question that still remains is what exactly is going to happen with that supply demand imbalance? We still have labor shortages when you take a look at some specific sectors. Construction being one of those, leisure and hospitality, where we did see some gains this past month here. But certainly were what? Over 300,000 jobs shy of where we were in hospitality before the pandemic.
JOSH SCHAFER: I think overall though, if we want to talk about data, we can talk about how many of those jobs are repeat postings or how long have they been up to. When we talk about over 10 million job openings, how many of those jobs are actually open and are actually looking to get filled? We're never going to have that answer, but I think that's probably the problem with part of that data.
MYLES UDLAND: Yeah, I'd be more interested in having that conversation about is the JOLTS report as good as we want it to be versus like, is the BLS?
SEANA SMITH: Another idea.
JULIE HYMAN: That's it.
MYLES UDLAND: Because it's tabulating open jobs at the end of the month but it's like, how do you qualify? What is open? What's not. And I think you Homebases, your Indeeds, your ZipRecruiters would have a lot of ideas in that direction of how many listings are ghost listings? How many listings are you actively trying to fill? What's the difference between actively trying to fill a job and a job just hasn't come through because you can't find the right candidates?
JULIE HYMAN: Well, and I think something that we've been sort of talking around too to your point is, what does all of this tell us about what's going to happen? And I don't know that it does, right? What kind of predictive ability does all of this has? It gives us a temperature on what's happening right now, looks backward a little bit. But if you have a job now, are you going to have a job six months from now? I don't think we have the answer. I don't know what--
JOSH SCHAFER: Everyone would like that crystal ball, right?
MYLES UDLAND: Yeah. So I think that's the thing to me, though, it's like, to criticize any piece of economic data on the basis of it being backward-looking, it's like literally everything's backward-looking. No one can see the future. I mean, you want to go into it, there's no future. If you break it down to that level, you're also--
JOSH SCHAFER: The future AI takes all of our jobs.
MYLES UDLAND: There's also no past. All we have is now, an infinite nows and all this kind of stuff. And so basically though like the market is-- and this is why I like markets, because markets are trying to guess at the future, and they give you information if you watch them closely about what an aggregation of investors believes the future will be. Today's reaction to the jobs report suggests investors think--
JULIE HYMAN: Future's good.
MYLES UDLAND: --that the future the economy will kind of chart the course that is slightly better than it's been, but not so much that we need to see a material change in how the Fed thinks about rates. Which means you can buy the Dow, I guess, or whatever. You can buy regional bank. Today, you can buy regional banks and a bunch of AI names and MongoDB, whatever.
JULIE HYMAN: But again, that's the market telling you now what it thinks it's going to have in the future. And its view can change on Monday and we got that--
MYLES UDLAND: And that's why we all have jobs. That's why this is a good job. That's why this is a good job because it's going to be different on Monday and next Thursday and three Thursdays after that. And we don't have to sit here and say like, are the Patriots going to win in week six next year? We don't have to wait for all that stuff. We just get it. I mean, they might even have a buyer, I don't even know. But it's like, we don't have to wait for all that stuff.
JULIE HYMAN: That's true.
MYLES UDLAND: That's my pitch.
JULIE HYMAN: Hopefully AI won't be able to do all of this. Fingers crossed.
MYLES UDLAND: I can do this.
[LAUGHTER]
JULIE HYMAN: Michelle, we'll leave it there for now. To be continued. Back to you.
- A fantastic debate that you have the reality of the jobs market and the existential crisis that comes with it as well. Thank you so much, Julie, Josh, Seana, and Myles for that fantastic debate on the jobs data.
