U.S. Employment Report Full of Contradictions

The November employment report was full of maddening contradictions. One economist called it “one of the most confounding that I have ever seen.” Another bluntly said, “I don’t believe these top-line numbers” (as in, they weren’t credible).

The mixed headline numbers were:

•         Non-farm payrolls grew by 210,000 jobs, far below expectations of 550,000.
•         But the unemployment rate fell sharply from 4.6% to 4.2%.

To explain the difference we have to get down into the weeds of the report just a little bit. The report is actually made from two separate surveys, the “establishment” survey, and the “household” survey. The establishment survey produces the non-farm payrolls number, while the household survey produces the unemployment rate.

Generally speaking, the establishment survey is considered to be more reliable because it uses a much larger sample of about 144,000 businesses, capturing around one-third of all non-farm payroll jobs. The household survey uses a much smaller sample of only 60,000 households. There are many other differences between the two which we will discuss below.

So let’s return to the differences between the two reports, of which there are many. One of the most significant differences is that the household report includes the self-employed, unpaid family workers, and private household workers—the establishment survey does not.

This difference with the data leads to a theory that might clear up some of the mysteries in the labor market in general. We know that the number of job openings compared to the number of hires is just off of a record high, so employers are desperate for workers. But at the same time, the number of people quitting their jobs hit a record high of 4.4 million recently. 

Some are suggesting that supply chain congestion is starting to ease. Really?

According to this data, the number of container ships sitting off of L.A. and Long Beach is higher than ever, as is the waiting time to unload.

From the services survey:

•   Labor shortages, transportation delays and supply constraints/allocations.”
•   Supply chain issues persist,
•  " …contracts on have been unavailable. Substitutes are always higher in cost.”
•   shortages and longer lead times… Significant cost increases from labor and freight are forecast for the start of next year.”
•   multiple shortages on everything from personal protective equipment (PPE) to computers and peripherals, and vehicles. Shipments are taking longer and prices continue to climb,
•   inflationary forces in the marketplace… suppliers raising their prices moving into 2022.”
•   Supplies continue to be difficult to obtain at times.”
•   “Suppliers continue to report that labor shortages are leading to production issues and delays. Continued inflationary pressures driven by the cost of fuel, shipping capacity constraints
•   “Late deliveries and shortages continue. Disruptions seem to be declining somewhat, as suppliers and customers are finding innovative ways to keep supplies moving
•   “Continuing struggle with transportation capacity.”
•  inventory shortages, driver and maintenance worker shortages, and long lead times …This limits our ability to keep vehicles on the road
•   “Inflation and supply chain issues… cost increases and stockouts

Commentary from the manufacturing survey suggests that the only sector getting better is plastics:

•  component shortages continue to cause delays in completing customer orders. Backlog continues to increase.”
•   “Petrochemical supply chain is slowly showing signs of improvement after multiple weather disruptions in 2021.”
•   “Large volume drops due to chip shortage.”
•   “All input costs are going up considerably, across the board.”
•   ".., the biggest challenge we have at the moment is finding qualified workers.”
•   "…shortages with various metals. Plastic resins seem to be slowly improving. Electronic component lead times are still moving out.”
•   “Business is strong but meeting customer demand is difficult due to a shortage of raw materials and labor.” [Furniture & Related Products]
•   …significant supply chain disruptions, which are resulting in historically long lead times… Commodity-based inflationary pressures are widespread
•   “We are starting to catch a break in plastic resins… Starting to notice improvement in availability/lead time as well.”