Five reasons economists misjudged US payrolls data

The US economy created 266,000 jobs in April, a big miss compared to expectations that the rapid US vaccination rollout and fiscal stimulus measures would generate employment gains close to 1m.

The implication for the recovery is that America’s boom coming out of the winter surge in coronavirus cases is not quite as strong as believed. The official data released on Friday validate the Federal Reserve’s long-held view that the US recovery is far from complete, and is bound to ease some fears of surging inflation and overheating.

But it also challenges the Biden administration’s hopes for a rapidly improving economy and the prediction by Janet Yellen, the Treasury secretary, that the US could be back to full employment by next year.

So what is to blame for the disappointing data? Here are some plausible explanations.

Volatile numbers

Economic data in a time of big shifts in the labour market, such as one under way with the reopening of many activities, can be volatile, erratic and non-linear, leading to big forecasting errors.

During the initial bounceback from the pandemic last spring, economists underestimated the strength of the recovery in a big way, while last month they clearly overestimated it. Federal Reserve officials have often said they do not judge the economy based on a single month of data, and this is even more the case during the pandemic. Most economists reacted to the figures by treating it as a bit of a fluke — a temporary slowdown in the recovery — as opposed to a sign that it is already fizzling out.

The coronavirus hasn’t disappeared

Economists may have become carried away by the rapid pace of vaccinations in America and the benefit this would provide to the labour market. Although the Biden administration reached its goal of administering 200m coronavirus shots last month, and 100m Americans are now fully vaccinated, the jobs report was compiled the week of April 12, when eligibility for jabs had not been extended to all Americans. This meant that some unvaccinated workers were still not ready to head back into the jobs market and businesses were not hiring as quickly as expected, purely for health reasons.

Some labour shortages may be emerging

With 8.2m fewer Americans working than in February 2020, it is hard to conceive of a situation where employers are having trouble finding workers to fill positions.

But mismatches in the supply and demand for labour may be starting to hold back the recovery. After more than a year of the coronavirus crisis, some workers may have cut ties with their former employers, moved house or are grappling with a reconfigured family situation that hinders their capacity to return to work. Meanwhile, some public transport systems are running on limited schedules, curbing some workers’ mobility.

Government support may be too fulsome

Republican lawmakers and some business groups quickly identified their preferred culprit for the sluggish job creation figure: overly generous government benefits. Not only has the US Treasury been sending out $1,400 stimulus cheques to most American families to ease pressure on household finances, but a $300 per week top-up in federal jobless benefits is in place until early September.

The critique is that these payments reduce Americans’ incentive to seek work. But other labour market data does not support this thesis. For example, the latest weekly tally of initial jobless claims showed applications for unemployment benefits falling below 500,000 for the first time since the initial 2020 lockdowns.

Many parents are still stuck

The jobs data exposed, as has become common throughout the pandemic, a yawning gender gap in the nature of the recovery. While men continued to pour back into the labour force last month, women retreated from it, meaning fewer females were employed or were searching for work compared to March.

The most likely cause of this may be the fact that many schools have only partially reopened and still lack services such as after-school care for children. Since women disproportionately bear the brunt of taking care of children, they are hesitating to return to full-time employment. They may defer any move to September, given uncertainty over availability of and conditions at summer camps.