We have better ways to know about the present than the past

The Bureau of Labor Statistics just released updated estimates that show the US economy had 818,000 fewer jobs than previously thought as of March 2024.

Economists were expecting a big negative revision; the only question was how large it would be. And this was a worse print than had been anticipated.

Needless to say/it bears repeating that there’s nothing nefarious about these revisions – this is just part of a typical practice used to give us better data of the state of the labor market.

(If you’re interested, Guy Berger, director of economic research at The Burning Glass Institute, and the Wall Street Journal’s Nick Timiraos have some excellent threads going over some of the more technical aspects of the revision process.)

But I’m simply going to make the point that you shouldn’t get too bent out of shape about these bad numbers and let the past warp your perception of the present. You can’t look at these revisions in a vacuum; more context is required.

Initial jobless claims (the number of Americans filing for new unemployment benefits) is still at very low levels versus history, and below average compared to the past decade. Even when Covid-impacted years are removed from the calculation.

“Even somewhat pessimistic revisions relative to expectations should not alter one’s expectations of a recession in the near term too much because this data is, after all, fairly old (4.5 months),” wrote Peter Williams, managing director at 22V Research, ahead of the revisions. “And we have a lot of other labor market and activity data to look at since then which more directly answers the question of how the economy is growing and if the labor market is experiencing accelerating weakness or just continued gradual normalization.”

From a dispassionate macroeconomic perspective, we care about people having jobs because that’s what gives them the spending power that keeps the economy chugging along. And the evidence we have suggests that total spending power is still growing at a decent (albeit slowing) pace.

Sales aren’t beating analysts’ expectations by a lot, but the surprises are still to the upside. Annual revenue growth for S&P 500 companies appears to have picked up a little steam in the second quarter, with a handful of stragglers yet to report.

While a lot of the commentary from management teams seems to have been on the dour side, this seems to be a case of the bad news being said the loudest – or at least getting the most attention.

Goldman’s analysis of earnings calls suggest sentiment regarding consumer spending, in aggregate, also improved during this reporting period.

“Some of the more negative anecdotes from companies exposed to lower-income consumers likely overstate any deterioration in the financial health of lower-income households,” writes Goldman Sachs senior economist Ronnie Walker. “Real income growth is likely solidly positive across all income groups, arguing against an outright decline in consumption, much less one driven by the lower-income consumer.”

If 818,000 jobs “vanish” and all the spending one would associate with solid labor market conditions is still there, do they really make a macroeconomic sound?