The Bureau of Labor Statistics recently changed how it analyzes raw data in its monthly jobs report, updating a formula known as the "birth-death model" starting in January.
The birth-death model is designed to estimate jobs created by new businesses — and jobs lost when companies close — before those changes show up in official records.
"In order to get the data out quickly, they make assumptions about the pace at which new businesses are being formed, births, and new businesses that are actually failing, deaths," Diane Swonk, chief economist at KPMG U.S., said.
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Because new job gains and losses aren't immediately measured, the monthly report relies on estimates — and that's why the government makes revisions months after the numbers are originally reported.
The new formula for the birth-death model is designed to limit that.
"What it's doing is assuming a much lower rate of new firm births and a higher rate of new firm deaths because that's what actually happened," Swonk said.
That should lead to more accurate figures and less drastic revisions, according to John Stewart, a supervisory economist at the Bureau of Labor Statistics.
"It should lower the error in our monthly estimates of the over the month change, such that our annual revisions will become smaller," Stewart said.
But data experts like Eric Pachman, a data analyst and founder of Data 4 the People, say the monthly report is still far from perfect.
"This is a model. Non-farm payroll is a model. All models have error," Pachman said.
"It's good, but it's not perfect," Pachman added.
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Ultimately, economists say the monthly data should be looked at as a likely baseline — but not as the definitive bottom line.
"The goal is to get, as you know, accurate as possible, as timely as possible. But in some cases, we find when the world shifts dramatically and we're standing on fault lines a lot these days, that ends up sort of wreaking havoc on some of the data and some of revisions," Swonk said.
The February jobs report comes out Friday morning. In January, it showed the U.S. added 130,000 jobs. Economists are expecting about 60,000 jobs were added in February, according to a Bloomberg survey.
