Missing jobs mystery puts Fed on back foot

Federal Reserve Board Chairman Jerome Powell holds a news conference in Washington
Federal Reserve Board Chairman Jerome Powell looks on during a news conference following the announcement that the Federal Reserve raised interest rates by half a percentage point, at the Federal Reserve Building in Washington, U.S., December 14, 2022.

WASHINGTON, Dec 22 (Reuters Breakingviews) - There’s a conundrum in the United States’ labor market. A study published by the Philadelphia Federal Reserve last week said 10,500 new jobs were added in the second quarter of 2022. Yet the national statistics bureau had previously reported a total over the same period of more than 1 million. Those seemingly missing jobs put the Federal Reserve, which uses the job market as a signal in its fight against inflation, on the back foot.

The gap is influenced by different methodologies and adjustments, and the Philly Fed noted that its sum-of-states figure shouldn’t be compared to the Bureau of Labor Statistics’ nationwide estimate. And it’s not the only example of imbalances in economic data. The BLS jobs report includes job counts from both a household survey and a survey of businesses’ payrolls. The two readings generally moved in lockstep before the pandemic, yet recent months have seen the two diverge.

Measures of inflation show similar dissonance. The Fed looks at the core Personal Consumption Expenditures Price Index (USCPPF=ECI) as its preferred gauge, since it strips out volatile food and energy prices. Yet the core Consumer Price Index (USCPF=ECI), an alternative measure, shows a higher overall inflation rate. And the dramatic rise this year in gasoline and food costs, which both measures exclude, still matters because it influences consumers’ view of where prices will go in future.

Picking through these numbers to come up with a single answer – the correct interest rate that will make prices grow at no more than 2% - is getting harder. Before the pandemic, comparable gauges generally pointed in the same direction, with differences often explainable by minute differences in methodologies. As those gaps grow, policymakers are left with a much hazier picture of how the U.S. economy is faring, and what they should do about it.

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The U.S. economy added 10,500 jobs in the second quarter of 2022, according to estimates released by the Philadelphia Federal Reserve, a sharp difference from the 1 million estimate for the period from the Bureau of Labor Statistics.

The federal government releases monthly jobs data, but revises its numbers once a year as part of a process known as benchmarking, which factors in more comprehensive data only released quarterly. Some regional Fed banks conduct early benchmarking.

Editing by John Foley and Sharon Lam

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