The most important feature of the Nonfarm Payroll report continues to go unnoticed. We should be watching the response rate in the second revision of the data. That is where failed and shuttered business show up.

This is important because the BLS methodology (and they are doing as well as possible with the tools at hand) assumes that missing reports from closed businesses are offset by new businesses. This usually is true but count me as a skeptic in the current environment. Here is the latest table of response rates, abbreviated to focus on recent years and the third release.

This version shows the continued post-COVID increase in missing responses. The first and second responses have returned to normal levels. Why is only the third response lower than usual? The shuttered business hypothesis is an obvious possibility.

The recent rates are 4 – 5% lower than the average of the prior eight years. If the failed firms are average in size, the NFP jobs estimate could be as much as 7 million jobs too high.

The uncritical acceptance of the data by so many is supporting the viewpoint that the economy does not really need additional stimulus. Eventually we will see the final verdict on this topic, but it will not be until January with the relevant edition of the Business Dynamics report.

Those who make the facile comment that these are good response rates completely miss the point. The response rate if fine for inferences about the characteristics of the sample. The problem is that you cannot infer the sampling frame or universe from the sample results.

Past posts here and here provide useful background drawn from more than 100 articles I have written on the BLS and nonfarm payroll reporting.