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Most Americans Unhappy with the economy They believe the country is already in recession, but the Biden administration frequently cites strong job growth as evidence that the economy is doing well.
But new data from the Federal Reserve Bank of Philadelphia throws cold water on that assertion, finding that recent job growth is 80% slower than previously estimated.
Every month, the Bureau of Labor Statistics (BLS) releases estimates of how much payroll companies have added or lost on a net basis. These reports projected a healthy annual job growth rate of 1.6% for the fourth quarter of 2023. But that’s probably way off.
The Biden administration frequently cites strong job growth as evidence that the economy is doing well. (Andrew Caballero Reynolds/AFP via Getty Images/Getty Images)
The Philadelphia Fed obtains these data from the BLS and compares them to more comprehensive estimates of the labor market each quarter, which allows for a more accurate estimate of job growth than is available from monthly BLS reports.
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The Philadelphia Fed analysis showed a sluggish growth rate of 0.3% annually, rather than the 1.6% growth rate previously estimated.
A difference of just 1.3 percentage points may not seem like much, but it is a big difference. In a country with a population of over 330 million and businesses employing over 150 million people, this is Over 500,000 jobs.
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In other words, the 500,000+ jobs that should have been added to the economy in the fourth quarter of 2023 never existed in the first place. Even more worrying, the Philadelphia Fed’s past two quarterly reports have also shown that monthly employment reports have overstated employment gains.
All of this combines to suggest that the labor market is less healthy than the headlines are reporting.
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Worryingly, other official economic indicators have also appeared to lose touch with reality in recent years.
In addition to its employment forecasts, the BLS also updates its Consumer Price Index (CPI) each month, which is used to measure inflation and the cost of living. However, some components of the CPI do not reflect the costs faced by the typical American today.
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For example, monthly mortgage payments on the median priced home in May were 119.5% higher than they were in January 2021, more than doubling in less than three and a half years. Yet housing costs have only risen about 22% in May, according to the CPI.
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The official measure has an error of about a factor of 5. The magnitude of this error is illustrated by the fact that starting in January 2021, when the Biden administration takes the helm of the country’s economy, a family will pay almost $14,000 more per year for 30 years to buy the same home.
No wonder, with employment overestimated and the cost of living underestimated. People are disappointed with Biden economicsWhenever the picture painted by official data does not reflect the general perception, that data deserves particular scrutiny. In this case, the early economic data widely reported is clearly misleading.
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The huge discrepancy between official data and the public’s economic beliefs isn’t because Americans have the “wrong” feelings about their finances or because they lack understanding, as some experts claim. Rather, it’s because some official metrics don’t match reality.
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Empirical analysis is considered more objective than something as fickle and elusive as people’s feelings on a topic, but that assumes it is backed by reliable data. Without that assumption, the benefits of hard data when assessing the economic situation are lost.
It’s like measuring the temperature in a room by asking the occupants how they feel, rather than observing a broken thermometer. People are feeling cold towards this economy..
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