Analysts have long expected a slowdown in the US labor market, but for the past 10 months, the data has come in better than expected.
That may sound like a good thing for the economy, but as the Federal Reserve attempts to fight inflation, the still-hot jobs market is signaling that more painful interest rate hikes could be ahead.
But lately, some economists have begun to worry that the data on which Fed officials rely is becoming increasingly inaccurate. The number of people responding to labor market and inflation surveys has been declining for years, and the pandemic accelerated that slowdown. That causes more volatility in the incoming data and hence more volatility in markets, economists say.
The Job Openings and Labor Turnover Survey, or JOLTS, a monthly data set that’s closely watched by the Fed and markets, has seen its response rate fall sharply since the pandemic — it is now just under 31%.
Julia Coronado, founder of MacroPolicy Perspectives and president of the National Association for Business Economics, said earlier this month that the decline in responses made the survey “basura,” the Spanish term for trash.
It’s not just JOLTS — the response rate for the Employment Cost Index, a pay measure also watched by the Fed, has dropped from about 75% in 2012 to under 50% today, according to Bureau of Labor Statistics data. The response rate to the Current Employment Statistics survey, which reports on payroll and wages each month, has fallen from 60% in 2019 to under 45% at the end of 2022.
CNN spoke with Torsten Slok, chief economist at Apollo Global Management about the declining rates. The interview has been edited for length and clarity.
This seems like a long-term problem … Is there an easy fix?
With the growth of spam and a decline in the number of telephone landlines there has been a structural decline in response rates and there is no easy solution to this problem, which is getting gradually worse and worse.
To what extent are declining response rates to surveys actually impacting the data we use? Are we talking about major gaps in our reading of the economy?
It is absolutely critical for the Fed and markets that the incoming data is as reliable as possible. For example, is the strong data we have seen in January for employment and retail sales a true description of what is going on? Is it driven by problems with seasonal adjustments, or problems measuring employment and consumer spending in the economic surveys?
Is the Fed aware of this and how do they factor that in as they determine policy?
When the macro data becomes unreliable there is a higher tendency to put weight on anecdotal evidence, which for example can be seen at the moment where the announced tech layoffs seem like a big deal — but they are basically irrelevant when compared with the recent data in the latest employment report for January, where the economy created 517,000 jobs.
The leisure and hospitality sector alone added 128,000 jobs in January, more than all tech layoff announcements combined. Is this a true description of what is going on or is the source of this discrepancy some measurement problems with the data we are looking at?
What kind of volatility does this cause in markets? Why?
With the Fed’s dual mandate of full employment and stable prices it is absolutely critical that the Fed and markets have a true description of what is going on with inflation and unemployment.
