Job growth starting in the second quarter looks set to be significantly revised downward

– by a New Deal Democrat

Last week the Federal Reserve of Philadelphia published working paper suggesting that only 10,500 jobs were actually added in the second quarter of this year, not 1,047,000 as indicated in the monthly establishment survey.

Here is their chart:

Here’s what you need to know about the QCEW (Quarterly Census of Employment and Wages):

The late Jeff Miller, a portfolio manager who was extremely popular at Seeking Alpha, and before that he was a college professor who teaches courses in public policy and quantitative methodology at the University of Wisconsin-Madison and Lawrence University, had this to say:

Each quarter, the BLS reports data from state employment agencies. Since no one pays insurance for phantom employees, we can expect conservative information. The only problem is that it takes about nine months to get those actual results.

“Any honest market watcher would hedge the date of this release…”

The QCEW is generated by more than 95% of all employers, essentially all who pay unemployment benefits; compared to the monthly enterprise survey, which is generated from a sample of 650,000 employers.

To understand how the Philadelphia Federal Reserve arrived at its result, I went back and reviewed the Q2 job growth (or loss) numbers in the QCEW since the database began in 2001. In the diagram belowThe first row is the year, the 2nd is the seasonally adjusted number of jobs added in the second quarter in the QCEW, in millions, and the 3rd is the seasonally adjusted number of the Enterprise Survey:


2001 2.0* 1.62

2002 2.5 1.79

2003 2.4 1.74

2004 2.9 2.76

2005 3.0 2.81

2006 2.9 2.58

2007 2.7 2.43

2008 1.9* 1.55

2009 0.7* 0.14

2010 3.1 2.61

2011 2.7 2.71

2012 2.7 2.46

2013 2.8 2.61

2014 3.2 2.83

2015 3.2 2.75

2016 2.7 2.62

2017 2.9 2.58

2018 2.9 2.70

2019 2.6 2.44

2020 -12.0* -16.3

2021 3.6 3.25**

2022 2.1 2.91

*=lower than Q2 2022 QCEW
**=higher than Q2 2022 CES

Then I went back and compared to the seasonally adjusted numbers for Q2 at CES. Every year that the NSA QCEW numbers for Q2 were below 2.0 showed actual job losses in the seasonally adjusted CES. The three years with the next higher numbers compared to the second quarter of 2022 – 2007, 2012 and 2019 – produced seasonally adjusted CES job gains of 90,000/month, 85,000 and 165,000.

So at this point, it looks like the Philadelphia Fed paper has a lot of merit: NSA QCEW data shows a very serious slowdown in job growth in Q2. And since the QCEW is not a survey sample, but rather collects about 95% of all data, it should be taken seriously (with the caveat that this is preliminary data).

It’s also consistent with the household survey showing just 12,000 jobs added since March:

and the US Treasury’s payroll tax collection showing a sharp slowdown first seen in June’s +0.5% year-over-year growth. Here is my recap of annual payroll tax payments to the US Treasury for each month this year through November:

  • January 2022/21: growth of +21.3%
  • February 2022/21: growth of +11.6%
  • March 2022/21: growth of +6.2%
  • April 2022/21: growth of +11.5%
  • May 2022/21: growth of +17.2%
  • June 2022/21: growth of +0.5%
  • July 2022/21: up +5.4%
  • August 2022/21: up +10.2%
  • September 2022/21: up +1.7%
  • October 2022/21: up +12.2%
  • November 2022/21: decline -2.5%

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