Earlier this week, the quote of the day in our Morning Lineup came from John Galbraith who once said, “Economics is extremely useful as a form of employment for economists.”Just like the broader labor market these days, it’s getting harder to find quality work in the economics profession. Friday’s release of the Non-Farm Payrolls (NFP) report for the month of July showed that the US economy created more than twice as many jobs as economists collectively forecasted (528K vs 250K), and by the individual estimates we saw, not even a single economist was even in the ballpark. While month-to-month anomalies can always pop up due to a variety of issues, ever since the COVID shock, the monthly trend in the actual versus forecasted change in NFP has been increasingly off target.

The chart below shows the 12-month moving absolute average spread between the actual monthly reported change in NFP versus the consensus forecasts. Obviously, this chart isn’t very helpful. The distortions created by COVID were unlike anything ever seen, and you can’t fault economists for not having a handle on things during that period. Nobody did. With the spread seeing a significant decline since then, have economists gotten back on track? 

Not at all. In the chart below, we stripped out the period where the 12-month average captures the period during the pandemic when the labor market was in chaos. Specifically, we took out the fifteen months from April 2020 through June 2021 as they include all or part of the four-month period from April through July 2020 when the NFP report was all over the map. Looking at it this way, the average spread between actual and reported Non-Farm Payrolls is now more than twice what it was in the pre-COVID period. In the months before COVID, the average actual reported change in NFP was routinely within 75K of the consensus forecast. In fact, from August 2005 through March 2020, the 12-month average never once topped 75K.In the post-COVID period, however, the 12-month average has been above 200K in 13 of the last 14 months. Forecasting the economy is no easy feat, but more than 2.5 years after COVID first reached US shores, economists still can’t seem to adjust to the realities of the current economic climate.

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