Get Ready for Tomorrow's Employment Data

The highlight of the week's economic reports comes on Friday when the Labor Department releases the employment data for January which, in itself, may be quite a shock. But, this report also includes the annual revisions to prior data where the BLS (Bureau of Labor Statistics) updates its "birth-death model" numbers, among other things, to try to bring the revised numbers a bit closer to reality, from which they strayed quite noticeably over the last few years. Here's the official announcement from last month:
A large portion of those estimated 125,000 construction jobs that were created by the birth death model in 2007 are going to disappear and the construction job growth of 100,000 in 2008 may turn negative as many more home-building businesses were dying than being born whilst the housing bubble was rapidly deflating.

One of the great deficiencies in the employment data coming from the BLS is that, due to the amount of estimation and modeling that is required to provide timely data, much of the estimation and modeling go horribly wrong when the economy turns from expansion to contraction or vice-versa.

The BLS is quite up front about this in their documentation, however, this doesn't stop huge revisions from largely invalidating the data that was reported prior to the revisions. Recall that a couple years ago, over 800,000 jobs showed up in one of these annual revisions and suddenly, all the talk of Bush's "jobless recovery" stopped.

As it turns out, many of those jobs involved nailing drywall and peddling mortgages to people who either didn't understand what they were doing or didn't care because they thought they'd soon be rich beyond their wildest dreams, but that's a discussion for another time.

Look for many hundreds of thousands of 2007-2008 jobs to "vanish" in a similar fashion on Friday as another turning point was reached and the BLS attempts to correct all of those embarrassingly large positive numbers with more reasonable figures.

As I understand it, the revisions will only cover the period up to March of 2008, primarily for the twelve months prior to March 2008, meaning that, even this revised data will quite old.

Comments

[bricki:]

So we are going back to "jobless recovery" concept. Rather interesting that this happens so soon after the elections.

Feb 05 04:09 PM

[Tom Armistead:]

ADP's numbers have been critisized for not agreeing with the BLS. Strange, I would have thought BLS would be critisized for not at least reflecting the same general view of reality as ADP.

My suggestion would be to total up data from ADP, Paychex, Ceridian and a few other large payroll companies and then extrapolate from there. That would be a lot closer to reality than what we are getting from BLS.

Sometimes the market seems to go up when empolyment goes down, as if a reduction in jobs meant companies could extract more work and higher margins from the survivors.

Feb 05 05:21 PM

[mikenh:]

In this era, drywall, like the average investor, is usually screwed.

Feb 05 05:57 PM

[Dave Wrixon:]

What recovery?


On Feb 05 04:09 PM bricki wrote:

> So we are going back to "jobless recovery" concept. Rather interesting
> that this happens so soon after the elections.
>

Feb 05 06:44 PM

[fatcat:]

I'm inclined to give anyone a fighting chance...but so far,Obama,...big hat,no horse....

Feb 05 06:48 PM

[JohnAl:]

"There are two kinds of statistics, the kind you look up and the kind you make up." ~Rex Stout, Death of a Doxy

"98% of all statistics are made up." ~Author Unknown

Feb 05 07:02 PM

[johnthegeni...:]

If the data being updated is only until March 2008, then how does this article prepare us for the employment numbers? Sorry, but I fail to see the value here.

Feb 05 08:40 PM

[John Lounsbury:]

Tim - - -

I may be lonely, but I do understand and appreciate your article. Your point is, at least by implication, if data nearly a year old is subject to massive revisions, just how much confidence can we place in the current data? Tom Armistead makes a proposal that could be explored to try for better data.

Thanks for posting this article.

Feb 05 09:19 PM

[Moon Kil Woong:]

Unemployment is getting ugly and the government's new solution is to let banks crawl under a rock and make their balance sheets even more horrible than before with yet another accounting change to let them hide their bad behavior.

Really! And that would make us trust their businesses more? Their accounting is already unbelievably lax and no one believes anything they say. And the government's new solution is to make it even more shoddy? This is a sick joke right?

Might I point out to them the ramifications of that. Asia is the biggest culprit. They suspened market to market in real estate. Thus construction companies that are broke keep getting bank funding to build forever even if they are empty because they never have to record a loss until they sell or rent the property. And lending to bankrupt construction is the safest because they never take a loss even though everything they build loses money in reality.

Thus the asset is eternally over valued. Then they don't sell or rent to anyone because no one wants to overpay for the property and the bank doesn't want to sell to anyone for a loss and there is no need for it to anyway unless the construction company goes under. Thus the government is always supporting construction company bailout programs like giving them millions to build a new tallest building in the world.

In the meantime you have vacancy rates of 25-50% with sky high prices because the market is never forced to balance this equasion and the government couldn't give a rat's ass about survivability of their population. They get to pay 50-80% of their money to rent or mortgage thus there is no domestic consumption and high savings rates because no one has money except to pay property or rent expenses. As for rent, it is usually like 2% of the property value which is good in some areas because the housing price is artificial.

In fact, the whole economy is artificial. That's why any financial downturn makes their stock markets drop 50% or more. Is this really what the US wants. And if so, who will be the next consumer country, because the US is basically giving up on it.

The citizens gradually become the type that lives with 3 generations crammed into a small house paying 50% of all their salary for a 1,000 square foot place. And the banks couldn't give a damn because, they have no incentive to do so and every incentive hoard overpriced property forever.

Feb 05 09:28 PM

[Maxi:]

I don't think we are gonna make job recovery so soon. We still have some jobs to loose.

Feb 05 09:48 PM

[E Thomas St.:]

Just for a boxing comparison, he's only 23 seconds into a 12 round fight. Fighting chance? Hardly.


On Feb 05 06:48 PM fatcat wrote:

> I'm inclined to give anyone a fighting chance...but so far,Obama,...big
> hat,no horse....

Feb 06 12:12 AM

[MarvinMBA:]

I think we are going back to an agrarian society...we lost our manufacturing and just about everything else except the countries credit rating and I thing the USA is flat out broke....MarvinMBA PS lending Uncle for zero interest rates or for that matter CD rates barely above zero has to be stupid.

Feb 06 01:11 AM