A Close Read of the Jobs Report Suggests Recession May Be Underway (November 5, 2023)

The BLS household survey reveals a labor market that is weaker than many assume

By Lisa Beilfuss
November 5, 2023

In the not so distant future, it may become evident that the U.S. economy ended 2023 in the recession many news outlets and commentators are certain it will avoid.

Economic data over the past week has been widely characterized as just right. Moody’s chief economist Mark Zandi called the October jobs report “as good as it gets,” showing “resilient, but moderating, job growth and easing wage pressures.” It followed a “stellar” third-quarter GDP report and came as the price of oil fell back to around $80 a barrel and the 10-year Treasury yield receded to around 4.5%, making it “tough not to think there will be a soft landing,” says Zandi.

Let’s focus on the latest jobs data. Headlines and analysis centered on a still-robust nonfarm payrolls increase of 150,000, a lagging indicator that is based on the monthly survey of establishments. But that figure belies weakness across the report’s 25 tables–many of them overlooked. A deeper dive into the data suggests the prevailing economic narrative is naive at best.

First, the household survey showed a 348,000 decline in jobs last month. The drop isn’t an anomaly. The household survey shows an average increase of just 32,000 jobs over the past six months, compared with 205,000 in the establishment survey. Over the past three months, jobs declined an average 13,000 a month according to the household survey, while the establishment survey shows an average monthly increase of 204,000.  

And despite some reports to the contrary, the steep decline in household employment wasn’t due to labor strikes. Those with a job but not at work because of a labor dispute are still counted as employed in that survey, says E.J. Antoni, an economist at the conservative think tank the Heritage Foundation. 

There are at least three reasons to pay more attention now to the BLS household survey than the establishment survey. The latter has been revised lower in eight of the last nine months, wiping out roughly a quarter of the increase in jobs initially reported so far in 2023. The household survey tends to be more accurate at economic turning points, says Wellington-Altus chief market strategist James Thorne. And, perhaps most importantly, more workers have taken on additional jobs in order to make ends meet.

The government’s two employment surveys began diverging in March 2022. The BLS has told this writer that its establishment survey has no way to prevent double counting. As the Federal Reserve Bank of St. Louis explains, employees working at more than one job and thus appearing on more than one payroll are counted separately for each appearance. By contrast, the household survey has no duplication because individuals are counted only once, even if they hold more than one job. 

Double counting explains about 1.3 million of the record 2.6 million job gap between the two surveys, says Antoni. The weeds of the employment situation reports help flesh out this point. Those holding a part-time job in addition to a full-time job jumped 5.2% in October from September and 12% from a year earlier, to the highest level since at least 1994, when the government started collecting that data. 

The number of people holding two full-time jobs, meanwhile, was up 14% in October from a year earlier. It seems fair to wonder if employers’ inability to recall a greater share of employees working from home is in part because many people can’t afford to drop one of their jobs. Consider that inflation appears to again be outpacing weekly earnings growth in October, reversing some recent modest improvement in real wages. One anecdote: Stuart Sopp of the fintech Current, which provides banking services through partner banks, said on CNBC last week that almost half of his company’s customers have more than one job.  

Other elements of the household survey are similarly worrisome. The rise in the unemployment rate to 3.9% was the highest since January 2022. As Antoni notes, labor force participation shrank in October, meaning the increase in the number of unemployed wasn’t because more people were looking for work. Instead, the number of people not in the labor force rose and is now roughly 5 million above pre-pandemic levels, he says, estimating that somewhere between 4.7 and 6.3 million people are being excluded from the unemployment rate calculation. Adding them back produces an unemployment rate upwards of 6.5%, Antoli says.  

To evaluate where we stand, many economists point to the Sahm Rule. Developed by economist Claudia Sahm, it says the economy is in a recession when the three-month moving average of the national unemployment rate rises by 0.50 percentage point or more relative to its low during the previous 12 months. 

As Harvard economist Jason Furman notes, the unemployment rate is now 0.5 percentage point above its low. That doesn’t meet the Sahm Rule threshold because it is one month, not the three-month moving average. Still, the three-month average is now 0.33 percentage point, and we’ve only been above 0.3 percentage point twice without going into recession (in 1951 and 2003), Furman says.

Sahm’s own caveat to her soft-landing call is worth heeding. “The Sahm rule triggers within the early months of a recession, so technically, we could be in a recession, and the rule is catching up,” she says.  

Jobs data are mostly lagging indicators. That reality makes the household survey data all the more concerning, especially given the uptrend in those working multiple jobs and thus being counted more than once in the sunnier establishment survey. The U.S. economy may well be contracting already, regardless of what oft-cited data say and despite an ongoing consensus expectation that a hard landing will be dashed.