October Jobs Report: Just another Government Fabrication

Government changed the "seasonal adjustment"

it made to the payroll numbers--and,

in so doing, boosted the number of "jobs"

created in October by 100,000.

(Rome continues to burn)

By Henry Blodget
Business Insider
11/13/10
Remember last Friday's payrolls numbers--the ones that blew away expectations about the number of jobs created and got everyone talking about recovery again?

Well, even at the time those payroll numbers were confusing, because the other part of the jobs report--the "household survey"--showed yet another crappy number.

But by pointing to the crappy household number and ignoring the payroll number, the bears seemed to be trying to make lemons out of lemonade.

But it turns out that there was a simple reason why the payroll numbers looked so good--a reason that had nothing to do with underlying strength of the jobs market.

What was that reason?

The government changed the "seasonal adjustment" it made to the payroll numbers--and, in so doing, boosted the number of "jobs" created in October by 100,000.

Stephanie Pomboy of MacroMavens (via John Mauldin) explains:

• " 'The seasonal bar which the payroll data must jump was (inexplicably and dramatically) lowered from prior Octobers.
• " 'Thus, in October 2009, the BLS set the bar at 870,000 jobs, similar to the 840,000 it anticipated in October 2008. This year, by contrast, it lowered the bar to 768,000. Mumbo, jumbo, payrolls presented "an upside surprise" of 100,000.'

Alan Abelson of Barrons (again via John Mauldin) adds the following:

"According to John Williams at Shadow Government Statistics, the BLS' fiddling with the figures via what he calls 'seasonal-factor games' actually created 200,000 phantom jobs last month. John cites such finagling as the reason his prediction of an October decline and a rise in the jobless rate was wrong. It also explains why seasonally adjusted payrolls were revised upward by 110,000 in September, including 56,000 in August."

In other words, it wasn't that there were a surprising number of jobs created in October. It was that the government changed its "seasonal adjustment" assumption in a way that made it look as though there were a surprising number of jobs created in October.

Now, seasonal adjustment is an art not a science. And maybe the new seasonal adjustment is more defensible than the old one. But if our government is going to publish a number like this that represents such a major "surprise," we would expect it to at least be upfront about the reasons for the surprise.

And in this case those reasons had NOTHING to do with the jobs market, and EVERYTHING to do with the seasonal adustment assumption.

David Rosenberg: Household survey found that 124,000 full-time jobs were lost in October

David Rosenberg
As Posted on Business Insider
Business Insider
11/8/10

David Rosenberg of Gluskin-Sheff is the latest to blast holes in Friday's supposedly "good" jobs report. Basically, he thinks the number was a total lie, and that the household survey, which showed continued deterioration, represented the truth.

It is astounding how market commentators leap on every piece of economic data; they merely look at the headline, and then make a judgment on whether it is weak or strong. The U.S. payroll report that came out last Friday was spurious, at best. Yes, yes, the +151,000 headline was nice and well above expectations, but it was also highly concentrated in just a few service sector industries, led by waste management. For an economy gone to waste, maybe that’s totally apropos."

But let’s get real here. The raw data showed that 919,000 payrolls were somehow created in October, which therefore would have made this the second strongest October in the last 11 years — in October 2009, the tally in the raw nonfarm payroll data was 646,000 even though the economy then was accelerating at a 5% annual rate. That 919,000 not seasonally adjusted surge in October far surpassed what we saw at the peak of the cycle in 2007 (740,000 jobs) as well as the boom periods of 2006 (698,000) and 2005 (727,000). The data bear no resemblance to the reality of an economy barely growing at all in real per capita terms.

For a bond or a stock trader, it all comes down to the headline nonfarm payroll number. For a labour market analyst, what is important is the information that comes from many parts of the Household survey. Who in their right mind could ever refer to the jobs report — it is an entire report, by the way — being strong when the employment-to-population ratio (the “employment rate”) dipped two-tenths of a percentage point to 58.3% in October. The labour force plunged 254k and the participation rate fell from 64.7% in September to 64.5% — the lowest level since November 1984! How is that bullish? If not for the slide in the labour force last month, the unemployment rate would have gone back up to 10%

The level of unemployment rose 76k in October and is up now in two of the past three months. They may take issue with Mr. Market’s and Mr. Media’s response to the headline payroll figure. The Household survey, when put on the comparable footing to the payroll report (the “population and payroll concept adjusted” series), showed a 505k slide in employment last month, the steepest decline of the year. That was certainly no +151k.

Not only that, but the Household survey found that 124,000 full-time jobs were lost in October, making it a five-month streak during which 1.1 million of these positions vanished, only replaced in part by 690k part-time workers.

To be sure, the payroll survey flagged upward revisions, an uptick in the workweek and a rebound in work-based pay. But the Household survey is consistent with an economy still mired in deep malaise if not contraction. So which survey is correct? Hard to say. Historically, only 5% of the time do the Household survey and Payroll survey diverge in any given month to this extent, and usually it is the former that has the story right. Time will tell.

DOL (Dept. of Laughter) NOT SO GREAT JOBS REPORT per David Rosenberg

David Rosenberg's take on the DOL

(Department of Labor Laughter) Payroll Report

NICE TREAT IN U.S. PAYROLLS, BUT THERE WAS A

TRICK IN THE HOUSEHOLD SURVEY

David Rosenberg
via Zero Hedge
11/5/10

Well, that was quite the shocker. Nonfarm payrolls managed to dramatically exceed expectations and rung up a total of 151,000 jobs in October — more than double consensus estimates. And, the prior two months were revised higher by a total of 110,000.

The workweek edged back up to 34.3 hours from 34.2 hours in September and along with the moderate increase in wages, average weekly earnings, a proxy for work-based personal income, jumped 0.5% MoM. This more than recouped the 0.2% decline the month before and was a welcome relief for a household sector that will be confronting sharply rising gas prices and grocery bills ahead.

The headline was undoubtedly strong, as were some of the details, but we want to warn readers that this was not a universally solid report. First, within the nonfarm report itself, virtually all the gains were in three sectors — health/education, retail trade and waste/administrative services. Goods-producing employment barely rose.

The diffusion index for private payrolls dipped in October, to 55.0 from 55.6, which is a four-month low, and for manufacturing, the diffusion index fell to 42.1 from 54.3, which is the lowest since December 2009. So while there was depth to the report, in terms of magnitude, there was not a whole lot of breadth to it.

Many sectors still reported job declines last month, including manufacturing, commercial and residential construction, transportation, information, financial and government. As I said, not a universally strong report, notwithstanding the solid headline results.

Moreover, the Household Survey showed a 330,000 decline in October, and again, full-time jobs declined, as they have for each of the past five months for a cumulative plunge of 1.1 million.

The employment-to-population rate — the share of the population that is working — fell to 58.3% from 58.5%, a 10-month low. Many labour market experts actually consider this to be the most accurate barometer of the health in the labour market (though they are clearly not day traders, judging from the immediate reaction in the bond and stock pits).

And many of the other measures of the unemployment rate edged up, with the broad U6 index staying stubbornly high at 17%. It will be very difficult to build any sustained wage pressure with this degree of slack overhanging the labour market. While the number of people working part-time for economic reasons slid 318,000, this has to be viewed in the context of the near-one million bulge in the prior two months.

Meanwhile, those folks who have been unemployed and looking for work fruitlessly for at least six months jumped 1.54%, or 83k, last month — the first increase since last May — and the median and mean duration of unemployment both rose as well (to 21.2 weeks from 20.4; and to 33.9 weeks from 33.3, respectively).

Bottom line:

Nice headline on U.S. employment, and the income figure too. But the Household survey did not offer ratification and the problem of excess labour supply has clearly not gone away. We finished off October with a level of jobless claims (455k) that is consistent with stagnant job growth, so do not be surprised to see some giveback in payrolls when the November data roll around next month.

DOL (Dept. of Laughter) NOT SO GREAT JOBS REPORT per Daniel Alpert

Here's What No One Told You About

The Supposedly Great Jobs Report

Daniel Alpert
Westwood Capital
11/6/10
Original Print on Business Insider

With a really fantastic headline number coming from the Establishment Survey, we thought we’d take a closer look at the other side of the coin. The Household Survey showed the following today:

• a decline of 330,000 in the number of people employed;
• a decline of 254,000 in the labor force;
• a decline in the employment-population ratio to 58.3% from 58.5% in September;
• an increase of 462,000 in those not in the labor force; and
• an increase of 76,000 in the number of people unemployed.

The drop in the number of employed is concerning - and brings into question the disparity between the labor force and unemployment statistics in the Household Survey, and job creation indicated by the establishment surveys. These were not small differences.

The take-away is that final demand in the U.S. can only be generated through an increase in the number of people with jobs and/or the wages earned by those employed. A material decline in the number of people employed (especially with only meager changes in hour’s worked and hourly wages) is not consistent with an improvement in final demand.

Furthermore, one questions why – with the Establishment Survey showing such a robust number – people are exiting the labor force, rather than entering it in response to employment opportunities?

The disparity between what the Household Survey and the Establishment Survey are telling us is of some concern. So we took a look at the ol’ net birth/death algorithm (NBDA) for clues (it adjusts the Establishment Survey data).

Note below that the birth/death adjustment for the aggregate of professional and business services, and education and health services in October was +81,000 - over half of the establishment survey's gains (and nearly 50,000 jobs higher than the average of +32,500 for August and September). We know that the NBDA has not had a very good track record during this recessionary and post-recessionary period.

Structurally, it is also useful to note that the increase in the number of unemployed, and number of people exiting the workforce, came nearly entirely from the statistical cadre over 25 with a college degree of higher – (labor force dropping by 332,000, unemployed rising by 97,000). Higher paying jobs continue to shrink, lower paying service sector employers hiring cheap labor. Sticky wages starting to get unstuck as unemployed become more hopeless? This would be a deflationary signal. Keep an eye on that hourly wage number going forward.

Daniel Alpert is a founding Managing Director of Westwood Capital, an investment bank and advisory firm. Daniel Alpert Background