Why economists are struggling to predict jobs growth

Last week’s jobs report was a big surprise — a good surprise, of course. Many more jobs added to the economy than expected. But good or bad, a surprise is a surprise. Even before Friday, over the last few months, economists surveyed by Factset have mostly been way off in their predictions of job growth — more off than they’ve been in over a year.

Two hundred fifty-four thousand jobs was not a number Matthew Paniati, a senior advisor at Capital Advisors Group, saw coming.

“I was maybe more positive than some of my coworkers, but I don’t think anyone saw,” he said.

He and his coworkers were in good company: Economists surveyed by Factset underestimated job growth by 111,000 jobs. 

Daniel Zhao, a lead economist at Glassdoor, was also surprised.

“In the run-up to the pandemic, we were going through a period of very stable jobs growth, where it was news if the jobs numbers came in 30,000 above or below the prediction,” he said.

Times have changed. It should be said that economists are less off about the jobs numbers than they were at the height of the pandemic, when the world was completely upside down, but still, it’s just really hard, said Matthew Paniati.

“Things we’ve observed in the past just don’t always hold in the future,” he said.

There are all of these trends and connections economists have made by looking at the past that aren’t working. The Phillips Curve says if inflation comes down so does employment — it didn’t. There’s the inverted yield curve where the bond market can predict recession — it did, but one didn’t happen. The Sahm Rule says unemployment rate changes can be used to indicate recession — they didn’t.

“The Sahm Rule, it broke,” said Claudia Sahm, for whom the rule was named. “It is extremely hard to get a pulse, particularly a quick pulse, on the U.S. economy. It is an incredibly dynamic economy.”

It’s been extra dynamic since the pandemic.

“Many industries have undergone fairly substantial changes in their normal seasonal pattern,” said John Stewart, a senior research economist with the Current Employment Statistics program at the Bureau of Labor Statistics.

Schools for example, aren’t letting go as many people in the summer, or hiring as hard in the fall, according to Glassdoor. Holiday shopping season keeps creeping earlier, changing hiring everywhere from stores to trucking to warehouses.

“So we’re all flying by the seat of our pants, trying to figure out what’s going on in the real time,” said Matthew Paniati.

On the bright side, whether it was predicted or not, the economy gained 254,000 jobs last month. So there’s that.