Powell says job growth may be even worse, which explains the rate cuts

One of the big mysteries with recent decisions by the Federal Reserve to continue to cut interest rates is that some parts of economic data indicate that job growth is continuing and unemployment claims staying rather low, and inflation continuing to be closer to 3% than the Fed's alleged target of 2%.

After this week's decision to lower rates by another 25 basis points, Fed Chair Jerome Powell gave some insight as to why. Because Fed officials think job growth is less than what the official numbers have been saying.

At issue is a monthly estimate the Bureau of Labor Statistics performs of how the labor market is affected by businesses closing and opening. The estimate, known as the birth-death model, takes a guess at the jobs gained by openings and lost by closings.

Powell said the model has probably overstated jobs by about 60,000 per month since April. With job growth averaging just shy of 40,000 in that period, an overstatement that size would equate to payroll losses of about 20,000 per month.

The chair called the discrepancy “something of a systematic overcount” that likely will see big revisions to job growth numbers.

In September, the BLS released a preliminary benchmark estimate that job growth was overstated by 911,000 in the 12-month period preceding March 2025. A final count is scheduled to come out in February.

In “a world where job creation is negative, I just think we need to watch that situation very carefully and be in a position where we’re not pushing down job creation with our policy,” Powell said.

"Job creation is negative"? That would indicate that the consistent losses that we have been seeing in the ADP private sector report have been more likely to be accurate, and the item about the birth-death model goes along with the ADP's finding that small businesses lost a lot of jobs in November, while larger companies kept gaining.

UW-Madison's Menzie Chinn also took note of Powell's comments, and adjusted the "official" jobs numbers down by 60,000 a month. With those adjustments, it has job growth peaking back in April, and near-zero US job growth for all of 2025.

And after delays due to the government shutdowns of October and part of November, we are due to get some catch-up data from the Bureau of Labor Statistics this week, with the release of November's jobs data and the 2nd quarter update of the Quarterly Census of Employment and Wages (QCEW). The QCEW should be especially interesting, as it was QCEW data that led to September's news of 911,000 fewer jobs in March. Would we see another QCEW number that might show lower job (and wage?) growth than we've had in the monthly reports?

If so, then Jerome Powell and the Fed might be picking correctly when they continue to cut rates, as it would show the US economy to be in or near recession. And while you may be rightfully skeptical of anything that the BLS might put out after Trump got rid of its commissioner when his fee-fees got hurt by bad jobs numbers, I'll remind you that Trump and other rich insiders are so strung out on debt that they need loose money and lower interest rates, and weak jobs numbers would allow the rate-cutting to continue.