January’s Hiring Boom Caught Economists by Surprise. Why Forecasts Often Miss the Mark.

Forecasters surveyed by The Wall Street Journal had estimated 187,000 jobs would be added last month, which would have extended a cooling trend in the labor market. Monthly estimates often don’t line up exactly with what the government reports, but Friday’s data showed the biggest discrepancy between economists’ expectations and the Labor Department’s initial estimate in nearly a year.

“This number is a black eye for economists that we didn’t do a better job foreseeing this shift in January,” said Lawrence Werther, an economist at Daiwa Capital Markets America. The latest data shows the labor market continues to be stronger than many thought, he said.

Economists point to a number of factors to explain the discrepancy between their forecasts and the Labor Department’s initial monthly estimate, which itself will be subject to revisions over the coming months and years. 

Some economists said they focused too much on media reports of layoffs by large companies. For example,

Amazon.com Inc.

said it was laying off more than 18,000 workers. That sounds like a big number. But it is small both compared with Amazon’s own workforce of 1.5 million and the U.S. economy’s entire labor force of 165.8 million people. 

“These layoffs aren’t translating into lower jobs reports,” said Peter Morici, an economist and professor emeritus at the University of Maryland.

One reason could be that many of those laid off from technology firms have been able to easily find new positions. There were 11 million vacant jobs at the end December, according to the Labor Department, about double the number of unemployed job seekers.

Mr. Morici said there is also a grouping-effect of forecasters because no one wants to be the outlier who predicts a number to be much higher or lower than peers. “We don’t just put a forecast out. We see what the other forecasts are,” he said. 

The January figures can be particularly hard to predict, economists say, because seasonal adjustment factors play a big role. Statistical agencies adjust all sorts of figures to make them comparable month-to-month and help people better understand what is going on with the economy. It is no surprise that employers let go of holiday workers in January or that Americans buy more hot dog buns before July 4. The question is how much more or less than typical. 

On an unadjusted basis, U.S. employers shed 2.5 million jobs in January. A year earlier they shed 2.8 million.

Nela Richardson,

chief economist at payroll processor Automatic Data Processing Inc., said seasonally adjusted figures might be skewing true results because the current period could be different from the prepandemic economy. The seasonal adjustments are based on models developed over many years. 

“Everything that is seasonally adjusted is a concern,” she said, adding that economists as well as government agencies have been working to improve their adjustments. “Everyone has to tinker with the engine a little bit, to make sure you are getting a true reflection of what’s going on in the economy.”

Meanwhile, some economists who were wrong on Friday might be proved correct—in a year or two. 

The Labor Department considers the latest figures to be preliminary numbers and will revise them in the next two monthly reports. Then once a year, the department uses an expanded data set relying on tax records to more finely tune its estimates. It releases that update each February, alongside January numbers. 

The revisions can be large. For example, a year ago, the Labor Department initially estimated 467,000 jobs were added in January 2022, on a seasonally adjusted basis, but after the latest revisions the gain was cut to 364,000.

On Friday the department said it revised the employment level for March 2022, the benchmark month, by more than 500,000 jobs, or an increase of 0.3%. The average adjusted revision over the past decade has been 0.1%, the agency said. 

Revisions and seasonal adjustments complicate the already challenging task of figuring out where the economy is headed, as economists weigh negative news from some large companies with largely positive labor market data. 

“It is completely confusing,” said Douglas Porter, chief economist at BMO Financial Group. “We have to all be humble in how well we can forecast what lies ahead.”

Write to Austen Hufford at [email protected]

Forecasters surveyed by The Wall Street Journal had estimated 187,000 jobs would be added last month, which would have extended a cooling trend in the labor market. Monthly estimates often don’t line up exactly with what the government reports, but Friday’s data showed the biggest discrepancy between economists’ expectations and the Labor Department’s initial estimate in nearly a year.

“This number is a black eye for economists that we didn’t do a better job foreseeing this shift in January,” said Lawrence Werther, an economist at Daiwa Capital Markets America. The latest data shows the labor market continues to be stronger than many thought, he said.

Economists point to a number of factors to explain the discrepancy between their forecasts and the Labor Department’s initial monthly estimate, which itself will be subject to revisions over the coming months and years. 

Some economists said they focused too much on media reports of layoffs by large companies. For example,

Amazon.com Inc.

said it was laying off more than 18,000 workers. That sounds like a big number. But it is small both compared with Amazon’s own workforce of 1.5 million and the U.S. economy’s entire labor force of 165.8 million people. 

“These layoffs aren’t translating into lower jobs reports,” said Peter Morici, an economist and professor emeritus at the University of Maryland.

One reason could be that many of those laid off from technology firms have been able to easily find new positions. There were 11 million vacant jobs at the end December, according to the Labor Department, about double the number of unemployed job seekers.

Mr. Morici said there is also a grouping-effect of forecasters because no one wants to be the outlier who predicts a number to be much higher or lower than peers. “We don’t just put a forecast out. We see what the other forecasts are,” he said. 

The January figures can be particularly hard to predict, economists say, because seasonal adjustment factors play a big role. Statistical agencies adjust all sorts of figures to make them comparable month-to-month and help people better understand what is going on with the economy. It is no surprise that employers let go of holiday workers in January or that Americans buy more hot dog buns before July 4. The question is how much more or less than typical. 

On an unadjusted basis, U.S. employers shed 2.5 million jobs in January. A year earlier they shed 2.8 million.

Nela Richardson,

chief economist at payroll processor Automatic Data Processing Inc., said seasonally adjusted figures might be skewing true results because the current period could be different from the prepandemic economy. The seasonal adjustments are based on models developed over many years. 

“Everything that is seasonally adjusted is a concern,” she said, adding that economists as well as government agencies have been working to improve their adjustments. “Everyone has to tinker with the engine a little bit, to make sure you are getting a true reflection of what’s going on in the economy.”

Meanwhile, some economists who were wrong on Friday might be proved correct—in a year or two. 

The Labor Department considers the latest figures to be preliminary numbers and will revise them in the next two monthly reports. Then once a year, the department uses an expanded data set relying on tax records to more finely tune its estimates. It releases that update each February, alongside January numbers. 

The revisions can be large. For example, a year ago, the Labor Department initially estimated 467,000 jobs were added in January 2022, on a seasonally adjusted basis, but after the latest revisions the gain was cut to 364,000.

On Friday the department said it revised the employment level for March 2022, the benchmark month, by more than 500,000 jobs, or an increase of 0.3%. The average adjusted revision over the past decade has been 0.1%, the agency said. 

Revisions and seasonal adjustments complicate the already challenging task of figuring out where the economy is headed, as economists weigh negative news from some large companies with largely positive labor market data. 

“It is completely confusing,” said Douglas Porter, chief economist at BMO Financial Group. “We have to all be humble in how well we can forecast what lies ahead.”

Write to Austen Hufford at [email protected]