(Bloomberg) -- US job growth blew past every estimate in September. But a good chunk of the surge may reflect how the government adjusts the numbers.
The Bureau of Labor Statistics, which compiles the employment report, uses a model to fine-tune the raw change in payrolls to better account for seasonal factors, like summertime fluctuations when teachers are off, construction jobs are booming and restaurants hire additional staff. That way, the numbers are more easily comparable month to month.
Last month’s so-called seasonal factor, which is calculated by dividing the total seasonally adjusted payrolls count by the unadjusted figures, was the largest for any September in records back to 2002.
“We’re in a different era for how the BLS seasonally adjusts jobs data as evidenced by the fact that the biggest September SA factors in history have all been in recent years. I’m not entirely sure why,” Scotiabank economist Derek Holt said in a note. “What this means is that we should be looking at reported job growth and smoothing the figures over time.”
Payrolls rose 254,000 last month, above all estimates and the most since March, the Friday report showed. The gain was driven by the restaurants and bars industry, construction and retail, and the strength in those industries “points to a tailwind from some combination of favorable weather and/or seasonality that is unlikely to persist,” said Stephen Stanley, chief US economist at Santander Capital Markets.
“September is a difficult month for the BLS to process because the composition of the labor force changes drastically when summer ends and fall begins,” Chris Low, chief economist at FHN Financial, said in a note.
“Since any seasonal distortion in this release represents overcompensation for seasonal distortion in the other direction in earlier months, one can conclude either that this report is strong or that prior reports were not as weak as previously thought. Either way, stronger-than-expected is the right characterization,” Low said.
Some economists, like Bloomberg’s Anna Wong, said before the report that the payrolls number could come in “surprisingly high” due to seasonal factors. Her team initially estimated payrolls would rise by 270,000 in September, due to fewer-than-typical job cuts in the hospitality and entertainment sectors and more seasonal hiring in education.
Another complicating factor could be the establishment survey’s response rate. Just 62.2% of businesses in the sample filed responses on time for the first estimate, the lowest for any September since 2002. Looking at the two subsequent collections over time, the response rate usually ends up toward the mid-90 percents, and the revised data can swing largely as a result.
“The extremely low response rate to the payroll survey waves a red flag,” Samuel Tombs, chief US economist at Pantheon Macroeconomics, said in a note. “We think that small businesses are disproportionately late responders and are cutting back on hiring more than large businesses. We are convinced, therefore, that September’s print will be revised much lower over the coming months.”
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