Predicting Benchmarked Us State Employment Data in Realtime

43 Pages Posted: 21 Feb 2020 Last revised: 18 Mar 2021

See all articles by Scott A. Brave

Scott A. Brave

Federal Reserve Bank of Chicago

Charles S. Gascon

Federal Reserve Bank of St. Louis

William Kluender

Compass Lexecon

Thomas Walstrum

Federal Reserve Bank of Chicago

Date Written: December, 2019

Abstract

US payroll employment data come from a survey of nonfarm business establishments and are therefore subject to revisions. While the revisions are generally small at the national level, they can be large enough at the state level to substantially alter assessments of current economic conditions. Researchers and policymakers must therefore exercise caution in interpreting state employment data until they are "benchmarked" against administrative data on the universe of workers some 5 to 16 months after the reference period. This paper develops and tests a state space model that predicts benchmarked US state employment data in realtime. The model has two distinct features: 1) an explicit model of the data revision process and 2) a dynamic factor model that incorporates realtime information from other state-level labor market indicators. We find that across the 50 US states, the model reduces the average size of benchmark revisions by about 9 percent. When we optimally average the model’s predictions with those of existing models, we find that we can reduce the average size of the revisions by about 15 percent.

Keywords: dynamic factor model, Employment, Data revisions, nowcasting

JEL Classification: C53, E24, R11

Suggested Citation

Brave, Scott A. and Gascon, Charles S. and Kluender, William and Walstrum, Thomas, Predicting Benchmarked Us State Employment Data in Realtime (December, 2019). FRB of Chicago Working Paper No. WP 2019-11, Available at SSRN: https://ssrn.com/abstract=3542090 or http://dx.doi.org/10.21033/wp-2019-11

Scott A. Brave (Contact Author)

Federal Reserve Bank of Chicago ( email )

230 South LaSalle Street
Chicago, IL 60604
United States

Charles S. Gascon

Federal Reserve Bank of St. Louis ( email )

411 Locust St
Saint Louis, MO 63011
United States

William Kluender

Compass Lexecon

United States

Thomas Walstrum

Federal Reserve Bank of Chicago ( email )

230 South LaSalle Street
Chicago, IL 60604
United States

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