The September employment report came in somewhat stronger than most people (including me) had expected, showing a gain of 110,000 jobs. In addition, August's numbers were revised upward to show a gain of 89,000, instead of a loss of 4,000. Most reporting has rightly focused on the good news. However, it is worth noting another item in the report. The September report included preliminary benchmark revisions to the establishment survey based on state unemployment insurance records. These records, which provide a virtual census of payroll employment, show that the establishment survey overestimated job growth by 297,000 in the 12 months from March of 2006 to March of 2007, an average overestimate of approximately 25,000 per month. The obvious culprit in this overestimate is the imputation for job growth in nearly created firms that could not be included in the survey. It would seem that the Bureau of Labor Statistics (BLS) overestimated job growth in new firms last year. This fact is relevant to the September jobs data because BLS has actually imputed slightly more jobs into the establishment survey in the last three months than it did over the same period last year. If the imputation led to an average overestimate of job growth of 25,000 last year, it is reasonable to believe that the overestimate may be at least as large this year, since the economy seems weaker by most measures. Reported job growth has averaged 97,000 over the last three months, so if BLS is overstating job growth by 25,000 a month due to a faulty imputation for jobs in new firms, the error would account for a substantial portion of reported job growth. We'll know the answer to this one in September of 2008 when next year's benchmark revisions are first released, but it is worth keeping an eye on this issue.
--Dean Baker
