A short thread on what to expect from tomorrow's jobs report.

TL;DR: two metrics that have done well in predicting employment so far are telling two different stories: one a significant deceleration from August, the other a big acceleration. /1

Two high-frequency employment metrics from private companies--one from Homebase, one from Kronos--have generally followed each other so far this recession.

But in August, the two started diverging significantly. Homebase is on the left, Kronos is on the right. /2

Homebase data has flatlined in recent weeks. Pairing their data with UI claims yields a forecast of +290K jobs in September, not seasonally adjusted.

Kronos meanwhile has accelerated. Using them instead leads to a +2.4 million forecast.

For reference, August was +1.4 million /3

As you can see, there's no great way to adjudicate these forecasts using historical data. Both measures have done well in the past. My attempt to mix the two with UI claims using a principal component analysis, perhaps predictably, almost exactly splits the difference. /4

So why are the two measures suddenty so different? Well, for starters, they're two different companies with two different samples.

But also, there's a fundamental difference in how the two indices are constructed that may explain the gap. /5

The Homebase data is based on a fixed panel of businesses that are present throughout the entire historical period. If Homebase gets more clients, those businesses are *not* added to the Homebase sample. If a client *leaves* Homebase, they're dropped from the entire sample. /6

The opposite is true of the Kronos data. As clients sign up with or drop Kronos, they're added to or removed from the index in real time.

So what implication does this have? /7

In an economy where *rehiring* among existing businesses is the primary driver of employment growth, you'd expect the Homebase methodology to do better. It's a fixed sample and is unaffected by how popular Homebase becomes as a business product. /8

But if the dynamics change and hiring among *new or reopening businesses* becomes a bigger factor, Homebase might start underrepresenting jobs growth, and Kronos might do better, because the latter's sample allows for new entrants. /9

Unfortunately, we don't have a great handle on business formation in real-time. High-frequency @uscensusbureau data suggests business applications that will likely lead to payroll employment are falling, but still above pre-COVID trend. /10

Some other metrics are consistent with flatlining. Mobility, for example, as summarized by the Dallas Fed's index, hasn't improved much recently. Womply data suggests there hasn't been a rise in the number of small businesses actually open. /11

UI has show a bit of movement, though some of the fall in regular claims has just been benefit exhaustion and subsequent shifts into extended programs. /12

There are also other possible confounding factors. For example: this year Labor Day fell during the CPS reference week, an event which only happens once every 7 years. /13

Looking at all the high-frequency data, I lean towards September coming in slower than August but still positive. But there is an upside risk case around that too (and, as always, a downside one). /FIN