Wednesday, January 5, 2011

Reality and the jobs numbers

Sometimes they get it right. We can hope.

Last month on December 6th the issue was “Jobs numbers verses reality.” The BLS jobs number was wrong. This month could be different. The private ADP number is out and all indications are Friday we’ll see a BLS report that adds a few hundred thousand jobs to the number of people we think are employed and may even be working.

That shouldn’t be a surprise. As stated last month, there was clearly something wrong with BLS’s season adjustment for November. The interesting thing to look for will be whether the employment increase BLS will report is a gain in December or a revision of November.

For those who see political conspiracies everywhere it is interesting to note that the undercount in December coincided with the hearings on extending the 99 week emergency unemployment benefits. I’m amused by the conspiracy theorists. They seem to be part of a massive delusion that government is always in control of its every activity right down to the details. I hate to pop anyone’s bubble, but governments make mistakes. It’s very likely someone just got the number wrong. That they were out of touch with the private economy around them shouldn’t be surprising: they’re government employees after all.

This month the news in the employment report released on Friday will be in the sector detail and the household survey.


  1. The Hedged Economist wrote to an active trader:
    How would you play this? My approach doesn't facilitate investing based on a monthly number, although I did do alright off of the error in the December report.

    The Trader responded:
    I don't play news at a matter of fact I try to avoid it as much as possible........that being said, I think the market already has this coming Friday's numbers baked in, and actually could go the other way just because I think the entire market is overdone by about 15 percent right now.......
    All good numbers being reported are basically in comparison with very bad numbers the past two years...housing looks to be a giant weight on this thing.......huge numbers still out there on the market and prices are not really going up, nor are legit sales....

    The Hedged Economist Responded:
    Just as you don't play the news, I don't play the economy, and for exactly the same reason. Who knows whether the markets are actually baking in the consensus 140,000 or some other number? I don’t.
    Whether the market is overdone depends on the time frame. A 15% correction
    would sure be a nice opportunity. I'm less optimistic than you that we'll get an opportunity like that soon.
    As to house prices and the overhang, for most people... if they're selling, they're also buying. Lower prices just save them some money on real estate fees. Granted some are underwater, but most aren't. I think it is between a third and half of home owners who don't even have mortgages. Another third of the households rent. I think because we have had mortgages most of our lives, we may over-estimate the importance of housing, especially since nowadays it seems a lot of people who are underwater consider paying their mortgage as optional.

    The Trader commented:
    I was basing my housing comments on Shiller, who I heard speak at length on an NPR show Tuesday, I think it was....he's fairly pessimistic right now......November numbers were awful.....

    The Hedged Economist wrote:
    I heard Shiller comment on the housing price release also. The November numbers he was talking about are the Case-Shiller repeat purchase index. It's very high quality data. I was the marketing expert on the data for the marketing staff at Moody's for a while. I'm familiar with details about how it is constructed. In the interest of keeping my sanity, I'm trying to forget. I think my brain wants to reclaim the storage space.
    The data released for November were rather gloomy, but they are a three month average for the previous three month period. So, they reflect the late summer and early fall. I think we knew things were bad back then, just not how bad. Don't get me wrong. Housing prices are hurting and I'm not particularly optimistic about house prices. However, if things go nowhere in housing for the next ten years, it wouldn't be the first time I've seen that. I sold a house in the late eighties that due to local market conditions sold for about the same price ten years later. It sold at a lower price in between.

  2. The Hedged Economist comment after the BLS report:

    The release sure didn’t conform to my interpretation of reality. I expected it would show a couple hundred thousand more people employed than were reported last month. Instead, with the revisions, it works outs to 170,000.

    Either there are 30,000 plus people out there employed and hiding, or alas could it be I’m wrong? No! No! Tell me it’s not so. Since the margin of error on the BLS survey is probably bigger than the reported gain much less the difference between the BLS estimate and mine, I’ll stick to my estimate.

    Stubborn, some. Also inclined to remember previous cycles where the payroll survey and household survey diverged at this point in the cycle. The household survey is generally less reliable, but it’s the straw I can grasp.

    The fall in the unemployment rate's just a fluke. However, there is one point worth noting: 10,000 baby boomers turn 65 every day. It shouldn’t be surprising if their labor force attachment is a little more tentative than younger workers.