Debunking the Fed’s Employment Narrative

It’s gonna be game-on at the Fed in two weeks!

With this week’s 9.1% headline CPI print, you just know they’re sweating bullets. In just a little over three months, the Fed has raised its fed funds target 150 basis points. And it would appear they haven’t put a dent in skyrocketing prices.

So you can be sure another 75 basis point move will be announced after their July meeting. (A 100 basis point move was rumored (trial ballooned?) just after the report which shook up the market until it was denied. So bank on 75…)

But rapidly hiking rates is not something we should be worried about, according to Air-Fed Capt. Jay Powell. Because he believes they can continue to aggressively hike rates thanks to a labor market that’s holding firm (in “Fed-speak” that means the economy is doing great!)

He said so on June 15 right after the FOMC meeting:

The American economy is very strong and well positioned to handle tighter monetary policy.

On June 22 The Hill quoted him:

Powell cited an unemployment rate of 3.6 percent, an average monthly gain of 408,000 jobs over the past three months and other signals of a strong labor market as signs of a strong and resilient U.S. economy.

On June 29 Bloomberg reported: 

Federal Reserve Chair Jerome Powell said the US economy is in “strong shape” and the central bank can reduce inflation to 2% while maintaining a solid labor market, even though that task has become more challenging in recent months.

What’ll be interesting to watch, is how the Fed will try to explain this position when the advance GDP report for the second quarter (due out July 28, one day after the FOMC meeting this month) comes in negative and (in theory) plunges the economy into a recession. (I’ll follow up on that in a future update.) 

Today I want to talk about the employment situation that Powell has made so much of. 

A lot has been made about this booming labor market — especially by the Fed. I believe it’s more economic “sleight of hand” you need to be aware of. Let’s dive in…

A Tale of Two Surveys…

When it comes to employment, the talking heads of finance feed us a stream of updates on a statistic called the Unemployment Rate. Currently at 3.6%, it is squeezed against its lowest level in years. A low unemployment rate means things must be good… right?

Not really.

I explained it in more detail in an update last October:

Actually the unemployment rate is one of the most manipulated numbers the government puts out.

The number they report is called “U3” which only accounts for those actively seeking employment. That means if you’re content sitting on your couch or just plain discouraged, you’re no longer “unemployed” — you’re “marginally attached.”

The U3 number is pretty much a farce.

But in truth there are a lot of other numbers that can offer a picture of the employment situation. The Bureau of Labor Statistics — keepers of all labor data — produces a huge menu of so many numbers you’d think every aspect of the labor market is covered.

But there is one distinction about this data you should be aware of…

They collect it all through something called the Current Population Survey. And within that survey, there are actually TWO distinct surveys. One is known as the payroll (or establishment) survey. The other is called the household survey.

To understand the reality behind this employment data, we have to dive a little deeper into each of these surveys.

If we head over to the Bureau’s site, they do their best to explain it (all emphases following are mine):

The payroll (or establishment) survey (CES) is designed to measure employment, hours, and earnings in the nonfarm sector, with industry and geographic detail. The survey is best known for providing a highly reliable gauge of monthly change in nonfarm payroll employment. A representative sample of businesses in the U.S. provides the data for the payroll survey.


The household survey (CPS) is designed to measure the labor force status of the civilian noninstitutional population with demographic detail. The national unemployment rate is the best-known statistic produced from the household survey. The survey also provides a measure of employed people, one that includes agricultural workers and the self-employed. A representative sample of U.S. households provides the information for the household survey.

One survey interviews businesses; the other households. Drilling a bit further into the differences between the surveys, the BLS notes the payroll survey counts: 

Nonfarm wage and salary jobs.

While the household survey tracks: 

Civilian noninstitutional population age 16 and over.

Got it? One survey counts jobs. The other tracks workers.

There’s more. 

As they continue breaking down the differences between the two surveys, we learn that the payroll survey is an:

Estimate of jobs (multiple jobholders are counted for each nonfarm payroll job). Includes only people who received pay for the reference pay period.

While the household is an: 

Estimate of employed people (multiple jobholders are counted only once). Includes people on unpaid leave from their jobs.

So basically one survey (payroll) counts jobs filled (no matter how many of them employ one person working multiple jobs) while the other (household) just counts the number of people working.

Now Here Comes the Economic Sleight of Hand…

Non Farm Payrolls — a popular alternative report released alongside the unemployment rate — is reported each month as a total number of jobs added for the month. Last month the report showed the economy added 372,000 jobs — over 100,000 more than was forecast. 

This was widely regarded as good news.

If you look at the cumulative total of Non Farm Payrolls, its data series is known as “Employed Persons,” things look pretty good.

Employed Persons

Source: Bureau of Labor Statistics

In February 2020 this number topped out at 152.5 million jobs. This past June it had rebounded to just under 152 million — 0.3% below pre-pandemic highs.

Again… you’d think this should be more good news.

Again… not so fast. 

Recall that the non farm number is taken from the payroll/establishment survey — the survey that only counts jobs and counts multiple jobholders for each job they hold.

Data from the household survey — the survey that focuses on the working population and counts multiple jobholders only once — gives us a slightly different picture. 

Under the line item Civilian Labor Force, last month’s household survey showed a decline of 353,000 workers from the previous month!

The cumulative data for this series is called the “Labor Force Participation Rate.”

Labor Force Participation Rate

Source: Bureau of Labor Statistics

In February 2020, labor force participation was at 63.4%. As of June 2022 it has only been able to recover to 62.2%. And it’s been essentially flat since January.

So What’s Happening Here?

One report indicated the number of jobs was growing, while the second indicated the number of workers was falling.

Jobs went up… but workers went down! 

It would appear the jobs increase wasn’t actually driven by an increase or growth in labor force participation, but rather from more workers holding down multiple jobs.

Indeed, according to the BLS, “Total Multiple Jobholders” increased 6% over the past year.

Multiple Jobholders

Source: Federal Reserve Bank of St. Louis

Why is this happening?

I’d say it’s largely due to the reaction to the pandemic — one that has fundamentally and, in my opinion, permanently altered the make up of the employment pool. Take the airline industry for example. This was the reporting in June of 2020 — the heart of the pandemic:

Airline executives are urging employees — from flight attendants to mechanics to marketing managers — to consider voluntary separation or early retirement packages, an effort to slash expenses after air travel demand plunged this year, hitting the lowest levels since the 1950s in April. Labor is generally airlines’ biggest cost and U.S. passenger carriers’ ranks rose by 20% over the past decade to 459,000 people, according to federal data.

Today (May 2022) the impacts of that action are being felt:

The United States is facing its worst pilot shortage in recent memory, forcing airlines to cut flights just as travelers are returning after more than two years of the Covid-19 pandemic.

In total, according to a study by the St. Louis Fed, there were slightly over 2.4 million excess retirements due to COVID-19.

So the worker pool has shifted. But even more importantly, those that are still working, are finding it necessary to work multiple jobs to make ends meet. 

Real wages have been declining for… well… years. And today with prices skyrocketing, they’ve fallen so far behind that second jobs are becoming more and more necessary.

This is NOT an indication of the “strong economy” Jerome Powell is going on about. 

Add to that the drop in personal savings (you’ve seen this before) is back below its dismal pre-pandemic levels in 2020…

Personal Savings


…the spike in revolving credit (this one too)…

Revolving Credit

Source: Federal Reserve Bank of St. Louis

…and now the use of micro-loans to make everyday purchases…

…you get a slightly clearer picture of the real health of the economy. 

Much has been made about the strength of the economy based on the “tight” labor market. They can massage the unemployment number to say whatever they want, but the reality of the economic situation will be felt by folks everywhere.

Make the trend your friend,

Bob Byrne
Editor, Streetlight Confidential