Jobs Report: A Sliver of Optimism

By James Kwak

One of the scary things about this fall’s descent into economic chaos was the failure of economic forecasters to keep pace. Every week economists would predict what they said were terrible things, and then the data would come in much worse, reinforcing the overall impression that no one knew what was going on.

Buried in all the negative reports about the December jobs data was one fact that was a tiny bit encouraging: The December job losses were almost exactly what forecasters expected, on average. This indicates that it’s possible that the macroeconomic community has come to grips with the magnitude of the downturn; if you’re feeling particularly giddy, you might even infer that this means that their GDP forecasts are in the right ballpark, which means (according to the WSJ) that the economy should start growing in Q3.

I wouldn’t go that far, though, and I think that Q3 forecast is too optimistic. It takes time to plan and execute a layoff (I’ve been there), so December layoffs are based on revenue projections based on data from October and maybe November. Because sales continued to fall faster than expected in November, companies will find they have to lay off more people than they initially expected, and that will drag into the new year. Furthermore, no one really knows how much the American household will shift from consumption to saving, and my sneaking suspicion is that it will be more than most people expect.

So all I can offer is a tiny sliver of optimism, that the people in the forecasting business are at least on the same planet as the rest of us. But still no one is sure what planet we’re on.

Comments

[Trading Alpha]

Interesting article until one remembers the BLS tends to only report about 2/3 of the actual job losses in the initial report. If the same type of revisions that occurred in Sept - Nov happen to December, the final number is more apt to be upper 700s. How would the market have reacted if BLS could accurately report the numbers?

So what I think you are saying is the economists are now no worse than the government. That is reassuring.

2009 Jan 10 07:50 AM

[CautiousInvestor]

Some where expecting December job losses to be 525,000.

Even though losses of 524,000 were reported, the report was worse than expected as payrolls in October and November revised lower by a total of 154,000 jobs. November's loss was revised to 584,000, the highest in 24 years.

Meanwhile over in survey land, the number of unemployed persons increased by 632,000 to 11.1 million and the unemployment rate rose to 7.2 percent.

There are games, of sorts, being played much of the data. The BLS calculates the worforce to 154 million people but excludes 1.9 million people who are "marginally attached" to the workforce.

If you throw these people ino the mix, the unemployment rate would increase to 8.3%(13/155.9) . Others estimate the real rate of unemployment to be higher.

Don't be too hopeful about us knowing what is going on.

2009 Jan 10 08:21 AM

[OldLimey]

With regard to the accuracy of economists' forecasts, I think the author might be in danger of confusing luck with judgement.

2009 Jan 10 09:05 AM

[herbert hoover]

Is this author serious?

2009 Jan 10 09:47 AM

[Roger Knights]

"The people in the forecasting business are at least on the same planet as the rest of us. But still no one is sure what planet we’re on."

LOL!

2009 Jan 10 12:41 PM

[John Lounsbury]

OldLimey, I agree with your comment. "Coincidence" might be a word considered as well as "luck". As a person with extensive scientific training, I know that one sample does not a data set make.

Secondly, for something like intial unemployment claims, the use of moving averages is probably more useful than trying to interpret each month individually. Three-month and six-month moving avaerages would be worth a try.

Finally, I have a quote from John Kenneth Galbraith:

"Economics is extremely useful as a form of employment for economists."

A note to the author:

James, I am not criticizing the article; you are simply reporting the news and trying to provide a rational anchor. I do think the subject of initial unemployment claims deserves a deeper look.

2009 Jan 10 12:56 PM

[Kunst]

"Buried in all the negative reports about the December jobs data was one fact that was a tiny bit encouraging: The December job losses were almost exactly what forecasters expected, on average. This indicates that it’s possible that the macroeconomic community has come to grips with the magnitude of the downturn; if you’re feeling particularly giddy, you might even infer that this means that their GDP forecasts are in the right ballpark, which means (according to the WSJ) that the economy should start growing in Q3."

Hey, a dart has to hit something. This time it got a balloon.

2009 Jan 11 04:54 PM

[Homer II]

Or another possibility is that when the forecasts came out at 525,000 unemployed for December, the BLS had a MUCH higher number "calculated". They gulped and said to each other, "gosh, what is going to happen when they see our Dec. total is 647,000?!" and after some thrashing about, another suggested, "Well, we could under-report this number now, and give the public a coincident one instead. And then later, we can revise the figure upwards in the coming month(s) when the public is less likely to hit the panic button".

2009 Jan 13 12:37 AM