Does Something Not Smell Right with the Jobs Report?

Executive Summary

On Friday the BLS stated 177,000 new jobs were created in April, beating expectations. Digging into the data, the first graph shows the declining number of respondents to the survey. Next, understand the new jobs number includes an estimate for jobs created or lost through the “birth/death” of new businesses. Note the BLS uses a computer model to generate this number, not actual contact with new businesses. The bottom right number in the second graph shows an estimated 393,000 net new jobs from “birth/death” model. However, the previous five-month average was negative 10,000. This growth of new businesses is at a time when small business optimism is similar to the beginning of recessions (see third graph). Additionally, University of Michigan’s Consumer Sentiment Index is near its all-time low. Some think the new jobs number is likely to be revised lower as data arrives.

For further analysis, continue to read The Details below for more information.

“It is a capital mistake to theorize before one has data.”
–Sherlock Holmes

The Details

Last week another questionable datapoint was released by the BLS (Bureau of Labor Statistics). On Friday the BLS stated that 177,000 new jobs were created in April, beating expectations. This seemed to give comfort and ammunition to those claiming the economy was strong. Of course, this is ignoring the fact that the growth in GDP turned negative at an annualized -0.3% last quarter. This newsletter will focus on the jobs number and its credibility. Remember, it is the “strong” employment data that many believe has kept the economy out of recession.

Let’s dig into the jobs created a little further. This number was derived from a survey of establishments, the response rate of which has been declining. According to Samuel Tombs, Chief U.S. Economist at Pantheon Macroeconomics, via X, “Another very low response rate for the payroll survey in April. The pattern of the last three years suggests that a downward revision, as more data are collected, is much more likely than an upward one.” (See graph below)

Embedded in the unseen formula for the jobs creation number is something called a “birth/death adjustment.” According to the BLS’ CES (Current Employment Statistics) website, “There is an unavoidable lag between an establishment opening for business and its appearance on the sample frame making it available for sampling. Because new firm births generate a portion of employment growth each month, non-sampling methods must be used to estimate this growth.”

To account for the new jobs related to newly created businesses, and the removal of jobs from closed businesses, the BLS uses a model, not hard data. The chart below from the CES shows the birth/death adjustments for the first four months of 2025.

Based upon the BLS model, 393,000 net new jobs were created in April due to newly opened businesses. As stated by economist Daniel DiMartino Booth, via X, this was the highest number since 2023, with the last five month average being -10,000. Absent this adjustment, the jobs creation number would have been negative or jobs losses.

So, let’s examine the environment in which the BLS’ model stipulates an enormous number of new businesses were created. First, the National Federation of Independent Business (NFIB) produces a small business optimism index. According to VettaFi, “The NFIB Small Business Optimism Index dropped for a third straight month, falling to 97.4 in March. The latest reading was below the 98.9 forecast and pushes the index below the historical average for the first time since October. The index is at the 38th percentile of the series.”

Looking at some of the subcomponents in the chart below from the NFIB: Plans to increase employment fell 13%; Expect Real Sales Higher dropped 4%; Now a Good Time to Expand fell 9%.

And overall, the University of Michigan’s Consumer Sentiment Index is near its all-time low, even lower than during the Great Financial Crisis in 2007-2009. This with certain categories of consumer debt reaching all-time highs and delinquencies soaring. And, according to the Challenger Job Cuts reports, via Trading Economics [emphasis mine], “U.S.-based employers announced 105,441 job cuts in April, down sharply by 62% from March’s 275,240 but still 63% higher than in April 2024.”

So, the public is supposed to believe that in this economic environment, with the consumer more worried than almost any other time in history, and carrying record amounts of debt, and with job cuts soaring and GDP negative, the highest number of businesses were opened in well over a year. And that number being created by a “model,” not actual contact with new businesses.

Call me a skeptic, but I find the numbers hard to digest. Absent the massive “birth/death adjustment” jobs are falling. This makes more sense considering other ancillary data. Everyone is free to believe what they want, but I tend to look at the totality of the data. Something does not smell right.

The S&P 500 Index closed at 5,687, up 2.9% for the week. The yield on the 10-year Treasury Note rose to 4.32%. Oil prices decreased to $58 per barrel, and the national average price of gasoline according to AAA rose to $3.17 per gallon.