Finance

US Economy Keeps Adding More Jobs Than Economists Predict, Yet Pessimism Persists

Maybe we should all pay a little less attention to the predictions.

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962454On June 2, the Bureau of Labor Statistics released its monthly employment report. Once again, it contained mostly good news.

In May, U.S. employers added 339,000 jobs — much more than the 190,000 jobs predicted by economists. April’s job gains were also revised upward to 294,000.

The increase in jobs for May came across a broad swath of the economy. Some of the largest gains were in health care, government, leisure and hospitality, and professional and business services.

The U.S. economy has been on quite a tear when it comes to job creation. More than 4 million new jobs have been created in the past 12 months. The last time the economy saw a month of job losses was in December of 2020 amid a spike in COVID infections.

The jobs being created are generally good ones too. An average U.S. worker now earns $33.44 per hour, which is an increase of more than 17.5 percent from prior to the pandemic.

The experts seem to be underestimating the strength of the economy. The May Bureau of Labor Statistics report represented the 14th month in a row in which more jobs were created than economists predicted.

C-suite executives are pretty pessimistic about the economy too.

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A survey of those holding executive and senior management accounting roles in U.S. companies recently found that only 14 percent are optimistic about the nation’s economic prospects over the next 12 months.

Of course, they don’t have a great track record either. In the fourth quarter of last year, the same survey found only 12 percent expressing optimism, a historic low, and at least the first five months of 2023 have proven the critics wrong.

Consumers’ outlook on the U.S. economy has faltered as well.

However, a good deal of consumers’ more recent negativity was tied to the debt ceiling crisis which has (for now) been resolved, as well as inflation, which is only at about half of where it was last summer (even as it does remain stubbornly persistent).

The temporary nature of consumers’ biggest economic complaints might make for improving sentiment sometime relatively soon, although consumers have demonstrated repeatedly lately that good economic conditions do not necessarily translate into positive feelings about the economy.

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Most people at any level of expertise have not had many good things to say about the economy for a while, and yet, they keep getting it wrong. We have known for decades that long-term economic predictions do not have a great deal of accuracy. One International Monetary Fund analysis found that economists failed to predict 148 of the last 150 recessions.

The economy is mind-numbingly complex, it is constantly in a state of flux, and even if you could get accurate, timely data (which you can’t) it is nearly impossible to fully determine cause and effect within the Gordian Knot that is the U.S. economy.

Plus, bias and personal incentives affect economists just like they affect all of us.

“Forecasts usually tell us more of the forecaster than the future,” Warren Buffet famously remarked.

Jan Hatzius, the chief economist for Goldman Sachs, had a less eloquent but more succinct take for Nate Silver’s book “The Signal and the Noise”: “Nobody has a clue.”

When it comes to shorter term economic forecasting, economists (and probably everyone else) fare much better. If looking out many months or even years, though, we’d almost be better off reading the future in a pile of sheep entrails.

I suppose we all like to feel like we have some idea of where we’re headed, maybe especially when we don’t.

That being said, it may provide some comfort, in a time when economic doom and gloom seems to be the general consensus, to know that very smart people get this sort of thing wrong all the time. Right now, it should bolster sentiment to keep seeing the economic pessimism repeatedly proven wrong.

It’s also possible that a lot of people who are willing to herd up in expressing negativity haven’t really internalized it. I don’t know why consumers would keep spending like drunken sailors if they really believed an economic catastrophe was imminent.

So, maybe we should all pay a little less attention to the predictions. Hey, we could even stop making so many of them ourselves. The numbers we get after-the-fact keep looking pretty good, and we can likely learn more from examining the past than we can by speculating about the future. 

Jonathan Wolf is a civil litigator and author of Your Debt-Free JD (affiliate link). He has taught legal writing, written for a wide variety of publications, and made it both his business and his pleasure to be financially and scientifically literate. Any views he expresses are probably pure gold, but are nonetheless solely his own and should not be attributed to any organization with which he is affiliated. He wouldn’t want to share the credit anyway. He can be reached at jon_wolf@hotmail.com.

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