The Bureau of Labor Statistics has introduced a revised method for calculating the monthly jobs report, focusing on the “birth-death model” that estimates job creation and loss from new and closing businesses. The change, effective January 2025, aims to enhance the accuracy of initial job numbers and reduce the need for large revisions later.

How the Birth-Death Model Works

The birth-death model is a critical component of the monthly jobs report, designed to estimate jobs added by new businesses and jobs lost when companies close, before those changes appear in official records. This model helps the BLS release timely data, even when direct measurements are not yet available.

“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,” said Diane Swonk, chief economist at KPMG U.S.

The revised model now assumes a lower rate of new firm births and a higher rate of new firm deaths, reflecting actual trends observed in recent years. This shift is expected to produce more accurate initial job numbers and reduce the magnitude of revisions over time.

Impact on Data Accuracy and Revisions

John Stewart, a supervisory economist at the BLS, said the update should “lower the error in our monthly estimates of the over the month change, such that our annual revisions will become smaller.”

However, data experts caution that the model, while improved, remains a statistical estimate. Eric Pachman, founder of Data 4 the People, noted that “this is a model. Non-farm payroll is a model. All models have error.”

Despite these limitations, the revised model is expected to provide a more stable baseline for interpreting monthly job figures. Swonk acknowledged that “the goal is to get as 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.”

Upcoming Jobs Report and Expectations

The February jobs report, set to be released on Friday, follows a January report that showed the U.S. added 130,000 jobs. According to a Bloomberg survey, economists are expecting around 60,000 jobs to be added in February.

The BLS has previously made significant revisions to job numbers, including a notable correction in 2023 after overcounting 911,000 positions. These adjustments underscore the ongoing challenge of balancing timeliness with accuracy in economic data.

While the new formula may not eliminate all inaccuracies, it represents a step toward more reliable monthly job data. As the economy continues to evolve, the revised model will be closely watched by policymakers, investors, and the public alike.