Steven Hansen's  Instablog

Steven Hansen
Send Message
Steven Hansen is an international business and industrial consultant specializing in turning around troubled business units; consults to governments to optimize process flows; and provides economic indicator analysis based on unadjusted data and process limitations.
My company:
Econintersect LLC
My blog:
Global Economic Intersect
  • The Sky Is Falling - Only 74,000 Jobs Created 6 comments
    Jan 11, 2014 4:59 AM

    This is the most misunderstood report I can think of. Literally everyone believes:

    1. it is accurate;
    2. it is a reflection on the economy.

    It is not accurate. Why do you think the BLS divides the report into two parts - household and establishment? These are two very different looks at the employment situation - and the data between these two measurements are very different. From the BLS on the establishment survey:

    For example, the confidence interval for the monthly change in total nonfarm employment from the establishment survey is on the order of plus or minus 90,000.

    WoW - a 90,000 window is big enough to drive a truck through. It literally means that last month's 241,000 and this month's 74,000 could actually be the same.

    And the household survey said the economy gained 143,000 jobs in December using an entirely different methodology.

    It is NOT a reflection of the economy. Jobs growth is determined by economic pressures developed over the previous six months. Econintersect's employment index has done a good job in guessing the trend lines of employment - and the trends are down but should change in early 2014.

    Employment is a rear view mirror - and everyone is looking for forward vision on where the economy is going. Why does everyone fixate on this highly inaccurate report?

    Finally, consider that in the real world - movement is not in straight lines. Data goes up, data goes down. But one needs to step back and average the data to see where it is going. If you would like to learn more about the trends, here is my analysis on the December Jobs Report.

    The Econintersect economic forecast for January 2013 predicted a slowing economic growth after several months of increasing growth. What this forecast cannot see is the effect of Obamacare - but slowing of growth in this forecast was primarily the result of the business sector.

    The ECRI WLI growth index value has been weakly in positive territory for over four months - but in a noticeable improvement trend. The index is indicating the economy six month from today will be slightly better than it is today.

    Current ECRI WLI Growth Index

    (click to enlarge)

    Initial unemployment claims went from 339,000 (reported last week) to 330,000 this week. Historically, claims exceeding 400,000 per week usually occur when employment gains are less than the workforce growth, resulting in an increasing unemployment rate. The real gauge - the 4 week moving average - improved from 357,250 (reported last week) to 349,000. Because of the noise (week-to-week movements from abnormal events AND the backward revisions to previous weeks releases), the 4-week average remains the reliable gauge.

    Weekly Initial Unemployment Claims - 4 Week Average - Seasonally Adjusted - 2011 (red line), 2012 (green line), 2013 (blue line), 2014 (orange line)

    (click to enlarge)

    Bankruptcies this Week: none

    For a complete look at our analysis this week - click here.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Back To Steven Hansen's Instablog HomePage »

Instablogs are blogs which are instantly set up and networked within the Seeking Alpha community. Instablog posts are not selected, edited or screened by Seeking Alpha editors, in contrast to contributors' articles.

Comments (6)
Track new comments
  • JT4041
    , contributor
    Comments (98) | Send Message
    I'm not sure at this point where the 4 week average of the IUC is trending.. the last weeks of 2013 were plainly trending sharply up (blue line in chart above)...and the new Orange line in your chart above for 2014 seems like its only 2 weeks, not 4, and so hard to tell direction..albeit the two weeks seem flat. It would have been clearer if your chart had continued where 2013 left off..instead of starting a new line. In any event as we get further into 2014 the direction will be more clear..
    11 Jan 2014, 09:15 AM Reply Like
  • Steven Hansen
    , contributor
    Comments (2305) | Send Message
    Author’s reply » sorry for the confusion on the 2014 data point. it is for one week only - but to make it appear, i have to stretch it to two weeks. Simply it is a single dot showing the 4 week moving average for the first week of 2014.


    as far as trends are concerned, the current value is approximately at the historical trend level for unemployment. see for an expanded analysis.
    13 Jan 2014, 02:46 AM Reply Like
  • DAG Investments
    , contributor
    Comments (4129) | Send Message
    Thank you for saying these things ... unfortunately, the people who most need to hear such facts are usually not the ones who read them.


    Could those numbers be an anomaly or outlier that's not representative of the actual trend? I look at the monthly numbers like everyone else, but we'd all be a lot better off if more of us would/could read (and comprehend) past headlines. When everyone goes berserk over any one of the multitudes of meaningless monthly data points that tick up or down by .00001%, why doesn't anyone ever ask themselves what the margin of error is for that particular so-called data? Or, how the measurements are actually taken, thus how much value they really have, especially in isolation?


    Sorry for the rant ... while it's certainly useful to track such data over reasonable periods of time and place a reasonable degree of value on it, the extreme overreactions to every insignificant monthly data point is absolutely insane! Even worse are those who conclude and claim that whichever politician they like or dislike for whatever unrelated reasons somehow dictates every minute data point fluctuation on a month-to-month basis. Maybe our nation's problems are not just caused by corruption, etc., but also to some degree by a citizenry "too busy" to read past the headlines and think critically about what they really mean ... or don't mean.
    11 Jan 2014, 03:29 PM Reply Like
  • kevinconway
    , contributor
    Comments (2755) | Send Message
    Hi. First time I have read one of your pieces...may I recommend that since we have people from all over the world on this and that you have an international perspective, that you start with the country you are talking about.


    People tend to evaluate unemployment on a global basis, while in fact different countries have different methodology...sometimes it is almost an apples and oranges discussion (Canada and US do not use the same criteria to establish final numbers, as one example close to home)


    Remember when the GOP was going nuts...the lies about the reported data "had to be wrong" it is much lower and no one is saying a word.
    11 Jan 2014, 10:14 PM Reply Like
  • Moon Kil Woong
    , contributor
    Comments (13620) | Send Message
    I agree with the author that this is a terrible indicator and worse yet, its margin of deviation makes each reports variance mean statistically nothing. In addition, the corrections to the initial report are often bigger than the margin of deviation showing major flaws in its fundamental logic.


    If you read further into the December's numbers you see just how many people are suspended from pay, laid off, or let go based on crummy weather alone. It does have a message although the government as usual doesn't want to acknowledge it. If you look at the longer term reports, you see how disjunction it is from the US Participation Rate. This report is just a dumb report for traders to use to create volatility and widen their spreads as they try to get you to buy or sell. It's about as reliable as sticking out your wet finger in the middle of the day to determine what the weather will be tomorrow.
    11 Jan 2014, 11:16 PM Reply Like
  • kevinconway
    , contributor
    Comments (2755) | Send Message
    Excellent. But the problem is that people like simple information and, even then, they seem to have a difficult time understanding....the politicians know this and have all kinds of fun, up and down, with the numbers.
    12 Jan 2014, 11:09 AM Reply Like
Full index of posts »
Latest Followers


More »

Latest Comments

Instablogs are Seeking Alpha's free blogging platform customized for finance, with instant set up and exposure to millions of readers interested in the financial markets. Publish your own instablog in minutes.