The great economic data crisis
Economists have long been disparaged for inaccurate predictions, but Friday's jobs report laid bare a new problem for the world's largest economy: questionable data.
Why it matters: Economic data is a crucial element in the movement of asset prices that determine what Americans pay for just about everything.
- It's not just the stock market — the yield on U.S. Treasury bonds helps set rates for mortgages, student loans, credit cards and more.
- Market moves also determine the value of assets like oil and the dollar, based largely on economic data.
Driving the news: The government's jobs report on Friday wasn't just much better than expected — showing the U.S. added 2.5 million jobs in May, 10 million more than economists predicted — it was full of inexplicable holes and numbers that contradicted other government readings.
- To wit, as DRW Trading rates strategist Lou Brien points out, the Labor Department's unemployment insurance report showed that for the week ending May 16 there were 29,965,415 unemployed people receiving unemployment benefits.
- The Labor Department's jobs report — which surveys individuals and businesses during the week of May 16 — found there were 20,985,000 unemployed people.
- That would mean there were 9 million more people receiving unemployment benefits than there were unemployed people during the exact same survey week.
What they're saying: "Safe to say it is fair to be a bit skeptical of the numbers," Brien said in a note to clients.
Between the lines: The Labor Department also noted that only 35 states reported pandemic unemployment assistance numbers and just 22 reported claims for extended benefits during that week.
- The extended benefits data was missing from the nation's second and fourth most populous states — Texas and Florida — suggesting the number of unemployed people is likely higher than the unemployment insurance data show, not lower by 9 million.
The big picture: Economic data is often incorrect or incomplete in its initial iterations, as it is based on human reporting and techniques as simple as making phone calls and filling out questionnaires.
- What's different now is that the shock of the coronavirus pandemic is pushing the potential scale of error to previously unimaginable levels.
- However, as Friday's trading action showed, the reports can still move markets.
The Labor Department's Bureau of Labor Statistics offered a bit of explanation for some of the irregularities in its numbers, pointing out that data collection for the jobs report was "affected by the coronavirus (COVID-19) pandemic."
How so: "Although [BLS regional data collection centers] were closed, about three-quarters of the interviewers at these centers worked remotely to collect data by telephone," BLS said in its May jobs report, also noting that no in-person surveys were taken during the month.
- The pandemic led to a rate of responses to its survey of households that "was about 15 percentage points lower than in months prior to the pandemic."
There's more: The May nonfarm payrolls report included a “misclassification error” that would have made the unemployment rate "3 percentage points higher" than the reported 13.3%.
- BLS said it was "investigating why this misclassification error continues to occur" as it's happened in the last three jobs reports.
Go deeper: Unpacking a surprise jobs report