'Planet Money' team wants to know: Why is it so hard to forecast the job market?
Mary Childs |
Friday, May 26, 2023
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The team at Planet Money spoke to a number of leading economists to find out why is it difficult to forecast the job market.
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The team at NPR's Planet Money sometimes asks economists what they think will happen next, which is a tough question, given that one of the best indicators is supposed to be the job market. And monthly employment reports keep defying predictions. Here's NPR's Mary Childs.
MARY CHILDS, BYLINE: We know that when we ask our prestigious, world-famous economic forecasters to look in their little crystal balls, which is something they have because that's how economics works, there will be a lot of room for error. Forecasting is impossible, especially in and after the pandemic economy, when the unexpected just kept happening.
JOE BRUSUELAS: When we look at forecasting, we always think about who's going to be wrong less, right?
CHILDS: Right. That's Joe Brusuelas. He's the chief economist at RSM, a tax and consulting firm. Now, for the most part, the super-unexpected stuff seems to be in the past. The ports are no longer so backlogged. The Federal Reserve has hiked interest rates so many times, which seems to have helped to cool historic inflation. And those higher rates have also helped an absolutely bananas housing market to calm down. But the labor market is still confounding forecasters and the Fed. It's been way more resilient than anyone predicted. A quick recap on the jobs picture - in May 2020, in the depths of the pandemic, it wasn't clear how long the recession would last. Turned out it did not last.
BRUSUELAS: When we take a look at the emergence out of the pandemic recession compared to the previous recessions, this recovery looks unlike anything we've seen since the 1980s. I mean, it's truly impressive.
CHILDS: Just a year later, consumer spending was high, and the U.S. added almost 6 1/2 million jobs in 2021. But then last year, the full-scale war in Ukraine started, which helped to keep inflation higher than anyone would like for longer. To fight it, the Fed hiked interest rates 10 times. And basically, everyone thought it was super-likely that the labor market would have to cool substantially - everyone but our expert Sung Won Sohn, an economics professor at Loyola Marymount University. Last year, when we asked him for a prediction, he told us the economy would add a robust 350,000 jobs per month. That's a lot of jobs. Turned out the economy added 352,000 jobs per month.
SUNG WON SOHN: What? You mean I missed it by 2,000? How did I do that? I assumed that the economy would come back, especially in employment, and it did.
CHILDS: So when we were looking for predictions through the end of 2023, we asked Sohn again.
SOHN: I'm predicting 150,000 jobs, which means that the labor market will remain fairly tight. So that's going to continue for a while.
CHILDS: We also got Brusuelas's prediction. He sees slightly fewer jobs added - 125,000 per month - because he sees a huge wave of folks retiring, years of constrained immigration and a smaller young generation aging into the workforce, so not enough workers to fill all the available jobs. He and Sohn do have different visions for the economy but not that different, which is kind of reassuring, as if maybe things are settling down enough to have some clarity and consensus.
Mary Childs, NPR News.
(SOUNDBITE OF SLEEPY TIGERS' "RENEGADES") Transcript provided by NPR, Copyright NPR.View this story on npr.org
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