Jobs Report: It's Worse Than It Looks

That may be hard to believe, but the economy almost certainly lost more jobs in January than the 597,000 job loss reported by the Bureau of Labor Statistics (BLS). The reason is that BLS imputes jobs for new firms that are not included in its sample. The formula used for calculating this imputation is backward looking, meaning that it depends on growth in prior quarters. When the economy takes a sharp turn in either direction, as it did last fall, the imputation is likely to be too high or too low, depending on the direction of change. The chart below compares the imputed job gain/loss in new firms in last four months with the imputation for the corresponding month one year earlier. (These data are not seasonally adjusted.) It is simply not plausible that more jobs have been generated in new firms in the last four months than in the same months of last year. The true rate of job growth is likely 40,000 to 60,000 less per month than current data indicate.

--Dean Baker