MW Is the economy losing jobs? The Fed's rate cut hints at bigger worries.
By Jeffry Bartash
Fed chief Jerome Powell suggested employment has declined since the spring
A U.S. Postal Service worker sorts packages after Black Friday.
Is the U.S. jobs market even worse than it looks? Most top officials at the Federal Reserve sure seem to think so.
The Fed this week cut its key interest rate for the third meeting in a row, showing it's more anxious about jobs than even the persistence of elevated inflation. Normally, the Fed focuses on keeping inflation low.
What's the big worry? Fed Chair Jerome Powell said the economy might be losing jobs now, and is not just enduring a period of low hiring.
In surprisingly candid remarks, Powell indicated the Fed does not trust official government statistics that estimate the economy added an average of 40,000 new jobs a month from April to September.
Instead, Powell said Wednesday, Fed economists estimate the U.S. actually lost an average of 60,000 jobs a month during that span.
"So that would be negative 20,000 per month," he said.
Whoa. How could such a miscount happen? Wall Street DJIA SPX COMP economists point to several explanations.
The biggest hurdle the Bureau of Labor Statistics faces is coming up with an accurate estimate of how many new businesses are created and how many old ones shut down. This is the so-called birth-death model.
The BLS uses the birth-death model to help fill in gaps in its survey of business establishments to try to calculate how many new jobs are created each month. The survey itself only queries a small fraction of all businesses in the country.
The problem is that the birth-death model tends to exaggerate job creation at turning points in the economy - when growth accelerates or when it slackens off.
Although the economy is still growing, it has cooled off considerably since a postpandemic boom from 2021 to 2023. And the BLS has consistently overstated job creation for the past few years.
Is there any solution? The BLS has been refining its birth-death model, but to some extent, it will always be an educated guess.
That's not the only stumbling block, though. Another factor is a declining response rate, particularly for the initial estimate of monthly job creation.
In short, fewer businesses are responding to the BLS survey in a timely manner. That renders the first version of its critical employment report less accurate.
More recently, the BLS has suffered from the loss of many staff members due to budget cuts and DOGE-related buyouts, while key positions have gone unfilled.
The current BLS head, a career official, is also an interim boss after President Trump fired the previous chief in the summer.
The BLS's travails aren't over, either.
The record 43-day government shutdown led to the cancellation of the October jobs report and delayed the November report until next week. The BLS is still catching up, and it may be a while before it does.
One of the two dissenters who voted against a rate cut this week, Chicago Fed President Austan Goolsbee, said the central bank should have waited until it saw the upcoming reports on inflation and employment that were delayed by the shutdown.
He contended the labor market was still in pretty good condition overall - what some economists refer to as a "low hiring, low firing" environment.
"There is little to suggest a deterioration of the labor market so rapid that we could not have waited for the data to come in the early months of next year before deciding to act," Goolsbee said Friday.
Powell and others obviously disagreed. The Fed chair, for his part, pointed out after Wednesday's vote that the unemployment rate climbed to a four-year high of 4.4% in September, from 4.1% in June.
The big worry among Powell and other rate-cut supporters is that declining employment could slow the economy and finally spur companies to ratchet up layoffs, creating a vicious cycle that's hard to reverse.
So far, there's little evidence of it. The number of people applying for jobless benefits each week is still extremely low and hasn't changed much over the past year.
"Overall, the labor market is cooling, not cracking," economists at Bank of America wrote in a note to clients.
Powell himself has also argued that the weakness in the labor market merely reflects a "cooling trend" - but he's clearly not taking every economic report at face value these days.
"It's a little bit curious," Powell said about the low level of jobless claims.
-Jeffry Bartash
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(END) Dow Jones Newswires
December 12, 2025 13:26 ET (18:26 GMT)
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