Photo: Getty Images
Q&A – Can You Trust the Government Jobs Report? The ADP Report vs BLS Report
Each day I feature a listener question sent by one of these methods.
Email: brianmudd@iheartmedia.com
Gettr, Parler & Twitter: @brianmuddradio
Today’s Entry: Fishy? Brian, ADP reports 300k private sector job losses and the administration now tells us it was better than projected job GAINS. Can you explain?
Bottom Line: This isn't a new question or conversation, but it was brought back to the forefront after last week’s polar opposite reporting from the two monthly barometers of the labor market. The ADP Report showed 301,000 private sector jobs slashed in January, with declines across businesses of all sizes – though small businesses saw the biggest losses – and all sectors except for mining. Conversely, the government report showed a gain of 467,000 jobs during the month with employment flat to higher in every sector. Emphasizing the great divide between these two reports, the largest job gains in January were in Leisure and Hospitality according to the government report – that sector saw the biggest job losses during the month according to the ADP Report. There really couldn’t be a greater contrast or a divide in the two reports. So, which one is most believable? Is it possible, as some have alleged, that the Biden administration is cooking the books to try to provide for a better news cycle heading into the midterms?
Let's start with the known differences between the two reports:
- ADP Report: Measures exclusively private sector jobs
- BLS Report: Measures public & private sector jobs
So, the BLS figures include government jobs that aren't factored into the ADP Report. If all other factors were equal there’d always be a natural variance to a certain extent due to the government report factoring in government job changes not factored into ADP’s reporting. Public sector employment accounts for approximately 15% of all US employment and 13.5% of overall employment in Florida specifically. Therefore, variances in the neighborhood of 15% or so between the two reports could be explainable without additional factors coming into play. But again, that’s obviously not at all the explanation regarding whatever the heck happened with jobs in January. So now let’s look at methodology.
Methodology of the ADP Report:
- Actual, anonymized, ADP data is used by Moody's Analytics to project job changes.
Methodology of the BLS Report:
- Call out surveys to HR professionals sampling changes that's then projected by BLS economists.
So, what's the difference in these methods? ADP processes the HR and payroll data for over 14% of Americans in the workforce. They’re far and away the leader in payroll processing which is why they produce monthly reporting that’s used by economists to gauge real-time conditions in employment. The starting point for the ADP Report is actual data covering a 6th of the entire US employment pool. Moody's then uses the data, taking into account sector and regional variances, to project the overall job changes monthly. The BLS uses call out surveys that's then used to project the result. It’s for this reason that the initial reporting by the BLS has commonly proved unreliable independent of other factors. Rather than starting with actual data, they’re using estimates provided by HR professionals about changes within their organization. If the HR professionals provide incorrect estimates to the government – you get the garbage in-garbage out effect. The BLS’s methodology is analogous to political polling. It’s a sample, and done well can be highly accurate, however there’s inherently a margin of error, prior to projections, that’s not present within the ADP Report.
The final piece of variance comes down to timing. The ADP employment data that’s used for the reporting is collected the final week of the month. Given the extensive callout surveying that must be done, the BLS begins sampling early in the month. For January the average date data was collected was the 12th. That’s a difference of about two and a half weeks between the two reports. Some months that doesn’t matter much. Given the volatility with the omicron surge and weather events we experienced in January – it possibly could have been huge last month. That takes us to revisions in data.
Government revisions have been absurd. All that ever gets reported in non-financial news media is the initial number each month and then its on to the next. That’s a huge disservice, in part because the BLS has routinely been providing a huge disservice with their initial reporting. Buried in the third-page of the monthly report the BLS shares revision data from prior months. This month’s info speaks to the degree of absurdity within the BLS’ initial reporting. The BLS just revised job data reported last June and July down by 807,000 jobs. At the same time, they just revised job data reported in November and December up by 709,000 jobs. This means the government’s initial reporting has been missing the actual mark by an average of 379,000 jobs a month! That lack of credibility renders the initial reporting as essentially useless.
Numerous studies have been conducted over the years comparing revised BLS jobs reporting for private sector jobs to the ADP Report. What’s been proven time and again is that the two reports end up in near-identical places once the government’s done revising their numbers. This is to say that well before the Biden administration the ADP Report has been the far more accurate initial report between the two. This takes us full circle to your question... Is something fishy going on here?
Here’s what I can tell you. There is an explanation that’s not conspiratorial here. With an average miss by the government of nearly 400k jobs a month, and with the timing of their surveying in January, the greater than 700k gap between the two reports is potentially explainable. The bigger issue is that with such absurd initial misses, if something’s not fishy, it’s broken. Clearly the methodology used by the government for their surveys is broken or their people are terrible at what they do (or perhaps a combination). Once again, your tax dollars at work...