Employment Still Doesn't Add Up 11 comments
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Jobs and unemployment will determine how “recovery” will play out. If the data we analyze is garbage, all forecasts will be garbage. Unfortunately, the unemployment and jobs numbers are having so many data anomalies that we must question whether it is possible to have any accurate economic forecast.
A 4Q 2008 Bureau of Labor Statistics report on private employment business dynamics almost slipped below the radar as the material is ancient recession history.
The numbers in their report do not add up to the numbers in their own employment data base. The reason this is important is that the monthly jobs number is probably one of the most important economic indicators. If this number is wrong, so are economic forecasts. The pictorial below compares this report to the BLS private sector employment data.
Even though the number of Americans between the ages of 16 and 65 are growing, we are in a cyclical job creation downtrend which began in 2000.
I have written on this topic many times in the past. It helps when the BLS creates a graph to prove this point.
While the US Census is increasing the size of the population for the working ages, the BLS is shrinking the size of the workforce. It appears that someone has decided a large group of the potential workforce is not interested in working. Is it spouses who have decided families can live on one paycheck? Has a portion of the workforce dropped off of the grid?
Unemployment has been bouncing all over the map with their seasonal adjustment difficulties. The non-seasonally adjusted data is too volatile to analyze. It may be likely that at the end of a bad recession, the seasonal factors are not operative.
The 4 week moving average of advance initial unemployment claims increased slightly this week to 570,000. This is the second week in a row this indicator has increased, although the overall trend line remains down.
So this begs the question – is employment dropping big time in August? If the seasonal adjustment is reasonably accurate then for some opaque reason, unemployment is jumping.
Both the Philly Fed and the NY Fed’s business surveys for August show redundancies are continuing for business overall.
Until unemployment and jobs data can be explained, economic forecasts should be continued to be viewed as suspect.
Additional Economic Data This Week
It should not come as any shock that the New York Fed says that business conditions for manufacturers in their reserve area is improving after last week's G.17 Federal Reserve release showed the first uptick in production in America in 19 months. There was also an increase in outlook towards future business conditions.
The Philly Fed also says conditions are getting better in August 2009. As the graph looks remarkably similar to the Empire State Manufacturing Survey it seemed redundant to post it. I am trying to overcome my skepticism that as these surveys are subjective in nature, that being told that the recession is over is not creeping into the results.
The Producers Price Index (PPI) again reversed direction in July 2009 and showed widespread price declines in finished, intermediate and crude goods. Oil related goods did show price increase of 2.8% but are normally excluded from analysis as fuel prices are so volatile. Price declines during recessions are normal as all levels of production reduce prices to compete in a smaller volume market. Potential price increase trends are developing in intermediate goods for manufacture (not shown in table below but is in the detailed data).
Last month, the market punters pushed the news that new housing construction permits went up 9% MoM. As construction is a major driver of GDP, this foretold good days were coming. I warned that although the news was good, that this is a meaningless statistic unless new home starts increased this month (one month does not make a trend). The July 2009 new home data shows that construction starts actually declined 1% MoM.
People who believe they understand what is going on in this economy will continue to be surprised – both optimists and pessimists. Wait for trends to develop before reacting. Overall there are no trends in new home construction except it appears to have bottomed.
One group believing we are at a turning point in residential construction is the National Association of Home Builders. Their August 2009 index was up one full point. NAHB Chief Economist David Crowe desperately hoped:
One very positive aspect of today’s report is the big gain registered in the component gauging home builders’ expectations for the next six months. This reflects anticipated sales stemming from the tax credit as well as recent signs that an economic recovery has begun. There is definitely a sense of hope among builders that the worst of the downturn is over and that a turning point is near at hand. Meaningful action by Congress could ensure that this upward momentum continues and that housing can help push the economy back onto solid ground.
We need to face the fact that there are too many homes now in America, and that new home construction will not blast off this year. As July would have been the point we would have expected to see some change, it did not happen. Maybe next year will be better but at this point not likely.
I am still contemplating the Fed’s decision to stop purchasing treasuries which was announced last week. The logic is illusive. The following graph by Bank of Tokyo – Mitsubishi UFJ poses the question – where would the yields be today if the Federal Reserve did not begin the purchasing program? Remember that Treasury yields plummeted on panicked investors seeking a safe haven. With the panic now gone, where will Treasury yields go without the Fed's involvement?
The rate of new mortgage applications improved slightly this past week but remains in the range it has been bouncing around within since April 2009. The four week moving average ofmortgage loan application volume (which includes refinancing) decreased slightly 0.1% WoW, and increased 25% compared with the same week one year earlier. The refinance share of mortgage activity decreased slightly to 53.3% of applications. The average interest rate for 30-year fixed-rate mortgage decreased 23 basis points to 5.15%.
Filing for Bankruptcy: Skins Footware (SKNN.OB), Cooperative Bankshares (COOP), Surfect Holdings (SUFH). Bank failures this week:
Economic Forecasts Published This Past Week
The Economic Cycle Research Institute (ECRI) released their Weekly Leading Index continues to increase its 26 year high.
No quotation was received this week from Lakshman Achuthan, Managing Director at ECRI.
The Conference Board released their Leading Economic Indicator (LEI) for July 2009 which has increased for the fourth straight month. Says Ken Goldstein, Economist at The Conference Board:
The indicators suggest that the recession is bottoming out, and that economic activity will likely begin recovering soon. The Coincident Economic Index (CEI) was flat in July – the first time it did not register a decline since October 2008. The Leading Economic Index, which has increased for four consecutive months, suggests that the CEI will turn positive soon.
Hat tip to Steve at MEMETICS & MARKETING for editing support.
Disclosures: long MMFs, GOOG, SLV, EWZ, EWY, EWA, EWC, PIN, Physical Gold. You should note I am continuing to close my long positions.
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federal manipulative machine. these two will be the first to trumpet good news, if real. utility quarterly earnings calls are good measures.
Thanks again for bringing the week's economic news together in one place. I see some of the things you have each week individually, but you always add a number of things that I see for the first time. I also appreciate the way you connect the dots between the various data sources.
I am really busy this weekend so I haven't had any time to go review the appropriate references, so feel free to correct me if I am off base. I think the lack of agreement between the the two changes in employment is that they come from two different surveys.
1. The monthly numbers come from the househald survey and have a measurement error of the order of +/- 300,000.
2. The quarterly numbers come from the establ;ishement surveys and have a monthly error of the order of +/- 100,000. On a quarterly accumulation the measurement error may be a little less.
So the numbers can differ becuse they come from two different data sets (two different surveys) and the measurement errors should have no correlation. This means some quarters the errors could be partially subtractive and some quarters they could be additive.
Please post a comment correcting me if I have made an error.
The other point you make about employment regarding the labor force declining in the face of a rising working age population has me bothered too. This is determined from the household survey and anyone who is not working and has not looked for a job in the preceeding four weeks is not counted in the labor force (or as unemployed either). These discouraged workers can be included in the so-called marginally attached if they answer specific survey questions in some certain way. Not many end up classified marginally attached - about half the number I would infer from demographics, perhaps even less than half currently. I am preparing an article for TheStreet.com on this subject entitled "The Incredible Shrinking Labor Force", although the editors are always free to change the title. I'll post an Instablog piece to link to the article when it is published.
'It is high time to break from the herd of pessimistic analysts, who will continue to bemoan economic weakness long after the Great Recession is history,'
www.forbes.com/feeds/a...
'It is high time to break from the herd of pessimistic analysts, who will continue to bemoan economic weakness long after the Great Recession is history,' said Lakshman Achuthan, Managing Director at ECRI.
www.forbes.com/feeds/a...
for those who do not understand what John is saying, the Bureau of Labor Statistics (BLS) has two monthly surveys that measure employment levels and trends: the Current Population Survey (CPS), also known as the household survey, and the Current
Employment Statistics (CES) survey, also known as the payroll or establishment survey.
even if one set of data came off of the CPS, and the other came off of the CES - this is a pretty massive discrepancy which needs to be addressed.
however, in this case, both sets of data came from the CES.
only one set of data came from the CES. i know realize there is another data set in the alphabet soup of BLS acronyms - BED. BED was used to create the quarterly employment dynamics statistics.
"The net change in employment from Business Employment Dynamics (BED) data series will not match the net change in employment from the monthly Current Employment Statistics (CES) survey. The CES estimates are based on monthly surveys from a sample of establishments, while gross job gains and gross job losses are based on a quarterly census of administrative records. In addition, the CES has a different coverage, excluding the agriculture sector but including establishments not covered
by the unemployment insurance program. The net over-the-quarter changes derived by aggregating component series in the BED data may be different from the net employment change estimated from the CES seasonally adjusted total employment series. The intended use of the BED statistics is to show the dynamic labor market flows that underlie the net changes in aggregate employment levels; data users who want to track net changes in aggregate employment levels over time should refer to CES
data."
Ok. in plain english they are saying they created another data set (there are at least 4) to track employment. the purpose of this data set is just to try to trend the underlying elements. they do not care it gives a totally different overall answer.
again, i continue to emphasize that there are no perfect economic indicators. all are flawed because data gathering is not occurring naturally and must be conjured.
Indicators themselves must be correlated and trended. single month's data is unreliable and must be trended. and you still may have the wrong answer.
the infamous monthly jobs report comes from sampling (CPS). it is plainly inaccurate but most are willing to hang their hat on it.
Thanks for getting back with the details.