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Employment Report: How much fudge in the number?

Tomorrow the Bureau Of Labor Statistics releases its monthly employment report, which is the most widely watched report on Wall Street. One thing to think about in that report is the Birth/Death model, with its definition: “There is an unavoidable lag between an establishment opening for business and its appearing on the sample frame and being available for sampling. Because new firm births generate a portion of employment growth each month, non-sampling methods must be used to estimate this growth. “ (www.bls.gov/web/empsit/cesbd.htm) So a non sample estimate of new businesses and hence new jobs is plugged into the total for each month before seasonal adjustments.  

 

This created 215K jobs in May, 2010, before the seasonal adjustments. That 215K job plug was 15.6% above the 2009 May plug figure of 186K. I would try to figure out how this jobs plug grew over 15% YoY in this economy but I don’t want to give myself a migraine.  In 2009 the June Birth/Death jobs plug was 133K . So I will multiply the growth in the May jobs plug YoY into my estimate of June’s plug number. The answer is 153.7K, which rounds to 154K . So my guess is that BLS will do their survey and then add about 154K jobs before seasonal adjustments and then spit out their employment number.

In May the nonseasonal number of jobs created was 1090K, which included the 215K plug.  (ftp://ftp.bls.gov/pub/suppl/empsit.tab1.txt) Seasonally the economy creates 659 K jobs so the report said 431K jobs were created. If one did not believe that businesses were growing according to the Birth/Death model plug, then from 1090K subtract 215K to get 875K  jobs before seasonal adjustment. Do the seasonal adjustment 875K – 659K = 216K. If the Census Bureau did add 400K jobs then private and other government jobs shrank in May by -184K without the Birth/Death plug!

Now maybe the June Birth/Death model plug will have the employment report higher than -125K, which is the current consensus as reported by Boomberg (http://noir.bloomberg.com/markets/ecalendar/index.html). But watch out in

August if only the Birth/Death plug provides an upside surprise. Because in 2009 the plug figure for July was -10K jobs.

Economic Bears - if the employment report is not as bad as you think just wait one month; and for the conspiracy theorists, you can watch to see  how much the plug figures change each month!

 

 



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