Joseph G. Carson

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The Bureau of Labor Statistics (BLS) first commissioner Mr. Carroll D. Wright described the agency mandate, "Fearless Publication of the Facts". By its admission, BLS failed to live up to its mandate as it published two employment reports for April and May filled with distorted and corrupt data.

Substantial misclassifications of people working and not produced a "false narrative" about jobs and unemployment in April and May. The pandemic of 2020 will stand alone in American history, triggering the steepest economic contraction but without an accurate statistical record of job loss and the level of unemployment.

In April, BLS found that 8.1 million people were wrongly classified as employed. In May, even with additional guidance to Census interviewers, BLS said 5.4 million people that were classified as employed but should have been classified as unemployed.

The misclassification of people working and not working corrupted the reported numbers. For example, if employed workers were properly classified, as unemployed on temporary layoff, household employment for April and May would show a cumulative loss of approximately 32 million versus the published numbers of 18.5 million. The level of unemployment in May would stand close to 30 million, and the jobless rates for April and May would be 19.7% and 16.3%, respectively. The published unemployment rates are 14.7% for May and 13.3% for April.

BLS decision to publish distorted and misleading figures is based on a long-standing policy. BLS stated, "According to usual practice, the data from the household survey are accepted as recorded. To maintain data integrity, no ad hoc actions are taken to reassign survey responses."

Defending "data integrity" is important, but defending a statistical system that has produced grossly inaccurate statistics is wrong. Even if adjusted numbers are only a "rough estimate" of the labor markets they portray a more accurate picture of what happened versus the published figures. What good is it to have more accurate statistics of the employment situation buried in an addendum out of sight of most users?

Former BLS Commissioner Ms. Janet Norwood said, "Change is a necessary part of a good statistical system, and we should not fear it. Just as there is no absolute certainty in statistical estimation, there is no absolute perfection in statistical methodology". BLS is defending a statistical process that failed.

The employment situation for April and May is far worse than the reported statistics. Investors, analysts, and politicians should look at the published data with a skeptical eye.

Viewpoint commentaries are the opinions of the author and do not reflect the views of Haver Analytics.
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The Bureau of Labor Statistics (BLS) first commissioner Mr. Carroll D. Wright described the agency mandate, "Fearless Publication of the Facts". By its admission, BLS failed to live up to its mandate as it published two employment [...]

BLS Failed Its Mandate: "Fearless Publication of the Facts"

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The Bureau of Labor Statistics (BLS) reported that the jobless rate fell 1.4 percentage points to 13.3%. The May numbers bettered consensus expectations by the largest margin in history as analysts (including me) expected the jobless rate to rise to near 20%. The question on the mind of many analysts is how can the jobless rate decline when many millions more filed new jobless claims? Not sure there is a good explanation.

The household employment survey is normally conducted through a combination of in-person interviews and telephone interviews. But for the safety of the Census workers, personal interviews were not conducted in May or April for that matter. As a result, the response rate to the household survey in May was exceptionally low at 67%, about 15 percentage points below the average rate prior to the pandemic.

The low response rate does raise questions about the accuracy of the numbers but does not mean the reported numbers are wrong. In the press release, BLS stated that they are investigating a "misclassification error" as a large number of workers temporarily unemployed because of the pandemic were wrongly classified as employed. According to BLS, the jobless rate would have been 3 percentage points higher if these workers would have been properly classified as unemployed. But even an error of 3 percentage points would have resulted in a jobless rate of 16%+, still far below consensus estimates of 19%.

Estimates of a much higher jobless rate were based on the jobless claims data. In mid-May, the four-week level of jobless claims was 5 million higher than the level in mid-April. Logically if millions more are filing new claims it means the jobless rate is rising, not falling, the exact opposite of what happened in May. Jobless claims do reflect "hard data" as each new claim represents an individual stating that they are unemployed.

However, not all jobless claims are legitimate, but one would think the lion share of 5 million in new claims is legit. It is worth noting that filing false claims can lead to serious penalties. The jobless rate, however, is based on the "honor system", as people are asked to state their labor force status. There is no penalty for providing false information. And it would be impossible to prove anyway.

One possible explanation for the gap between the two data series is that people who work for businesses that received government support were told that they are back on the payroll (although not working) but still filed for jobless benefits. I have no proof that this took place. But it appears to be the only logical explanation. Perhaps in the coming days, there will be press reports of double-dipping; that is, people getting paid to not work and filing for jobless benefits at the same time.

The equity market reaction to the May data is not surprising, but seeing the equity market trade up so sharply even before the release of the data does raise questions over possible leaks. Here too I don't have any proof, but isn't it odd that the equity market was trading up so sharply before what everyone expected to be the highest jobless rate since the Great Depression.

Viewpoint commentaries are the opinions of the author and do not reflect the views of Haver Analytics.
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The Bureau of Labor Statistics (BLS) reported that the jobless rate fell 1.4 percentage points to 13.3%. The May numbers bettered consensus expectations by the largest margin in history as analysts (including me) expected the jobless [...]

Bombshell---Jobless Rate Falls Even As Millions More File Jobless Claims

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In May, the Institute of Supply Management (ISM) released two surveys on manufacturing. The message is bleak; the contraction in activity remains sharp and firms expect a record decline in revenues and capital expenditures for 2020.

The May composite index for manufacturing rose 1.6 percentage points to 43.1%. The headline reading overstates the activity level in manufacturing. Three key sub-components, new orders, production, and employment, have readings in the low 30s. The low readings on production and jobs speak about the sharp contraction. Pessimism about a recovery is apparent in the low level for new orders.

The ISM manufacturing index was initially created in the early 1980s by Mr. Ted Torda, a colleague of mine at the Office of the Chief Economist at the Department of Commerce. ISM manufacturing index was created to help predict quarterly changes in GDP. The initial launch of the ISM manufacturing index had a weighting scheme of new orders (.3), production (.25), employment (.2), supplier deliveries (.15), and inventories (.1). The current weighting scheme applies equal weights (.2) to the five components.

Using the original weights the May 2020 composite index is estimated at 39.5, up from the 36.9 reading in April. Both readings are about 4 percentage points lower than the published figures.

Why is that important? The ISM composite index is a diffusion index. Both the level and the change in the index level are important. The published figure of 43.1% or the adjusted figure of 39.5% both say the same thing: the manufacturing sector is still contracting.

Yet, the one shortcoming of a diffusion index is that it does not distinguish between the magnitudes of change. That means large declines in one industry could be offset by small increases in another industry and vice versa. Also, declines in activity are not linear any more so than increases. In other words, just because a monthly reading moves up or down from the prior month that has no bearing on the next months reading.

In May, the 30% readings for production, employment and new orders indicate that the manufacturing sector is still experiencing a sharp downturn. And the fact that these readings are marginally above the record lows of April create a false impression that the road to an eventual rebound is just a few months away.

Weakness in the manufacturing sector and pessimism on the outlook is also seen the semi-annual survey of manufacturers. According to the survey results released in mid-May, firms expect overall revenue to decline by 10.3% in 2020. But 58% of those surveyed expecting a crash, with revenues off 20%. Plunging sales have forced firms to plan for record layoffs and to cut capital expenditures by a stunning 19%.

The message from manufacturing is that a severe contraction remains in play and a recovery is a long way off. Both view are at odds with the optimism of the equity markets.

Viewpoint commentaries are the opinions of the author and do not reflect the views of Haver Analytics.
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In May, the Institute of Supply Management (ISM) released two surveys on manufacturing. The message is bleak; the contraction in activity remains sharp and firms expect a record decline in revenues and capital expenditures for 2020. [...]

ISM Surveys of Manufacturing: Sharp Contraction Underway & No Sign of Recovery

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Paul L. Kasriel

The CHIPS (Creating Helpful Incentives to Produce Semiconductors) Act was signed into federal law on August 9, 2022. The CHIPS Act provides various subsidies for the production of semiconductors in the US. Semiconductors are an integral component in numerous kinds of equipment, including defense equipment. A major impetus for passing the CHIPS Act was national security.

The encouragement of domestic semiconductor production seems to be coming to fruition. In the advance estimate of Q1:2025 real GDP, released on April 30, 2025, the annualized change in the production of real information processing equipment skyrocketed to 69.3%, as shown in Chart 1.

250430X1.jpg

Those who are in the economic forecasting “profession” likely had penciled in a large increase in their forecast of Q1:2025 information processing equipment in that there was a large increase (29% annualized)  in the production of semiconductors in the Federal Reserve’s Q1:2025 industrial production report (see Chart 2). The Federal Reserve also provides monthly data on the production of semiconductors. The monthly annualized percent changes in semiconductors are plotted in Chart 3. As you can observe, in both Q1:2024 and Q1:2025, the surges in semiconductor production were “front loaded” in the sense that January increases were much larger than the subsequent February and March increases. (I’ll leave it to reader(s) as to why I am highlighting the January 2025 increase.)

250430X2.jpg

250430X3.jpg

So, we might say “mission accomplished” in terms of the CHIPS Act stimulating the domestic production of semiconductors. But the current presidential administration has indicated that it wants to scrap the CHIPS Act and replace it with tariffs on imported semiconductors. If it ain’t broke, why fix it? Subsidies or tariffs – which one would be better for aggregate economic welfare? Tariffs on semiconductors would penalize all of the consumers of the end products in which semiconductors are a component. Moreover, domestic producers of semiconductors would have an incentive to raise their prices under the umbrella of higher-priced imports subject to the tariff. Government subsidies to semiconductor producers are not free. Current or future taxpayers will bear the cost of the subsidies. But should not the cost of national security be “socialized”? My bet is the cost of the government subsidizing the semiconductor sector is less than the cost of imposing tariffs on imported semiconductors. Hmm, this might apply to other things deemed important for national security such as steel and aluminum.

Good Bye Mr. CHIPS?

Charles Steindel

The Federal Reserve Bank of Philadelphia’s state coincident indexes in March were a touch firmer than in February, but not robust. In the one-month changes, West Virginia was on top with a .77 percent gain, while South Dakota, Indiana, Montana, and South Carolina were also up more than .5 percent. Nine states were down, with Connecticut’s .23 percent drop being the largest. Over the three months ending in March, five states were down, with Massachusetts off .48 percent (Connecticut and Rhode Island also showed declines, obviously suggesting some softness in southern New England). West Virginia was up 2.06 percent, and South Carolina, Montana, Indiana, and South Dakota also rising more than 1 percent. Over the last twelve months, Iowa and Michigan were down, and twelve others saw increases of less than one percent. No state had an increase higher than four percent, and only four were at or higher than three percent. Utah’s index rose 3.33 percent, while Michigan was down 1.48 percent.

The independently estimated national estimates of growth over the last three and twelve months were, respectively, .61 and 2.44 percent. Both measures appear to be a bit weaker than the state numbers.

State Coincident Indexes in March 2025

March was another month of little change in state labor markets. The sum of payroll changes among the states was close to the national result, and revisions eliminated most of the gap initially seen for February. Six states saw statistically significant gains in jobs in March, with Pennsylvania increasing by 20,900 and Missouri up .5% (Texas reported a larger, not statistically significant, gain than Pennsylvania). A few states had insignificant declines.

Three states (Connecticut, Massachusetts, and Virginia) had statistically significant changes in their unemployment rates, with Connecticut’s .2 percentage point rise being the larges. Indiana reported a significant .2 percentage point drop. The highest unemployment rates were in Nevada (5.7%), DC (5.6%), Michigan (5.5%) California (5.3%), and Kentucky 5.2). Hawaii, Montana, Nebraska, North Dakota, South Dakota, and Vermont had unemployment rates under 3.0%, while South Dakota’s 1.8% was yet again the lowest in the nation.

Puerto Rico’s unemployment rate was unchanged at 5.3% and the island’s job count moved up by 800.

State Labor Markets in March 2025

Viewpoints: June 2020

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BLS Failed Its Mandate: "Fearless Publication of the Facts"

Bombshell---Jobless Rate Falls Even As Millions More File Jobless Claims

ISM Surveys of Manufacturing: Sharp Contraction Underway & No Sign of Recovery