M IdeaUS Economics | North AmericaAnswering Your Questions on Employment Morgan Stanley & Co. LLCEllen ZentnerChief US Economist Ellen.Zentner@morganstanley.com +1 212 296-4882 Sam D CoffinEconomist Sam.Coffin@morganstanley.com +1 212 761-4630 Diego AnzoateguiEconomist Diego.Anzoategui@morganstanley.com +1 212 761-8573 Sarah A WolfeEconomist Sarah.Wolfe@morganstanley.com +1 212 761-0857 Lenoy DujonUS/Canada Economist Lenoy.Dujon@morganstanley.com +1 212 761-2779 Low response rates, persistent downward revisions, and upcoming benchmark revisions – there is a lot to dissect in the employment report. We answer your questions.1. What does a low response rate for the Establishment Survey mean?2. What are nonfarm payroll revisions doing?3. What can we expect from the benchmark revisions on February 2?4. What does the birth-death model tell us? 5. Are we seeing abnormal seasonal factors?For important disclosures, refer to the Disclosure Section, located at the end of this report.January 19, 2024 05:01 AM GMTM Idea2What does a low response rate for the Establishment Survey mean?The initial response rate for the December 2023 establishment survey was 49.4% - a low since 1991. This compares to an average response rate of 65.5% in 2022 and 73% pre-COVID. While the initial response rate is very low, the collection rate after the third and final estimate of monthly jobs is consistently at least 90%. We have seen sharp drops in the response rate before – last year the response rate dropped from 66.5% in October to 49.4% in November, before recovering back to 64.0% in December 2022 ( Exhibit 1 ).There are several reasons why initial response rates to the establishment survey may be low in any given month: business failures, storms that interrupt normal activity, timing of holidays, government shutdowns, strikes, pandemic, etc. More generally, response rates have been in decline over the past decade and were further exacerbated by COVID. This causes less stable and less statistically sound data estimates and leads to more volatility in back revisions. The cause of the decline in the response rate in December 2023 report was not an obvious interruption like a storm and does not appear to be due to business failures given how low initial jobless claims remain. There could be an impact from the Holiday, which would not persist into January. Does a low response rate mean anything for revisions? There is a statistically significant negative relationship between the absolute size of payroll revisions between the first and third release and the response rate in the initial release – lower response rates tend to portend larger revisions. However, we have seen the relationship weaken over the past 30 years ( Exhibit 2 ). And over the COVID period (2020-2023), the relationship has become insignificant. Exhibit 1:Response rate from first to third release of Est...
