260,000 non-farm jobs evaporated out of thin air! The trust in the US statistical system has collapsed: survey response rate falls below 60%

Note that the latest employment report shows that the data on US employment growth has been significantly revised downwards by the largest margin since the outbreak of the pandemic, fundamentally changing the labor market landscape in recent months. The July employment report released by the Bureau of Labor Statistics (BLS) on Friday showed that the non-farm employment numbers for May and June were revised downwards by nearly 260,000 in total. While some of the revisions for these two months were due to seasonal adjustment issues, economists believe that this also reflects a broader trend of low response rates. US President Trump quickly seized on this revision, tweeting on social media that it was a "major mistake," and also announced the firing of BLS Commissioner Erica McTeaf. The revisions were primarily concentrated in the education sector of state and local governments - the data for this sector had significantly boosted total employment in June, but was revised downward significantly a month later. The BLS explained in a statement that these sectors accounted for about 40% of the total revision, mainly due to the inclusion of supplemental/adjusted samples in routine operations after the initial values were published. This reveals a deeper trend that is more concerning than just labor data: the continuous decline in response rates to statistical surveys. The BLS conducts wage surveys on businesses over a three-month period, and a more complete picture is obtained as more businesses respond. However, the initial response rate for these surveys has consistently been declining, with response rates in recent months repeatedly falling below 60% - far below the typical level of around 70% before the pandemic. Omar Sharif, President of Inflation Insights, pointed out that "the more missing data, and the more concentrated the late reporting, the greater the risk of larger than expected revisions," and that "a 50% response rate simply isn't enough." Employment reports consist of surveys on businesses (which generate wage data) and households (which calculate unemployment rates), and the response rates for the latter are also declining. However, the BLS stated that their analysis shows "no significant correlation between response rates and subsequent revisions to wage data." Initial response rates for employment surveys have dropped significantly. With increasing public aversion to tedious surveys, and declining trust in government agencies, response rates have been declining for years. Statistical agencies are also facing budget constraints and understaffing, which have become more serious during Trump's administration. Gregory Daco, Chief Economist at EY-Parthenon, stated that "government funding cuts are affecting the ability to collect and analyze economic data," and that "all BLS reports in the future may see greater fluctuations." Earlier this week, the BLS announced that approximately 15% of data collection for its Consumer Price Index (an important inflation report) sample has been paused. Previously, the agency had announced in June that data collection in three major metropolitan areas had been paused, stating that data collection would be paused when existing resources can no longer support it. The Trump Effect Derek Holt, Head of Capital Markets Economics at Scotiabank, proposed another possible reason: the rapid policy changes in Washington. In a report, Holt stated: "In the tumult of employers grappling with the impacts of fast-moving changes in trade, immigration, fiscal, and other policies, data quality may further deteriorate due to low response rates." Ahead of this report, Federal Reserve Governor Christopher Waller cited "expected data revisions" as a reason for supporting rate cuts this week, a position contrary to most of his colleagues. In addition to the rolling revisions conducted by the BLS on employment data, a larger-scale annual revision is also released every February to compare with more accurate but less timely sources of data. The BLS will release preliminary revision forecasts months in advance, with last year's forecast being the largest since 2009.