Is B/D Adjustment the BLS's 'mark-to-model'?
A: Today's jobs report was downright ugly but not unexpected. This all but assures that June 26th's Q1 GPD advance number will be negative and show continued economic contraction; any final Q1 # below 0.6% would mark the recession as starting in Dec 2007. But it's Mish's blog post today that delves into the jobs report that really made me think. How accurate is the data that is being provided to us?
Lets start here. The BLS B/D Model page states:
* 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.
Which brings me to this quote from Mish:
"Virtually no one can possibly believe this data. The data is so bad, I doubt those at the BLS even believe it. But that is what their model says so that is what they report. Just as there is mark to model in the investment world, there is mark to model in the BLS world."
What he is talking about is what Barry Ritholtz has been stating for years; the Birth/Death Adjustment (B/D) suggest that construction added 28,000 jobs, leisure & hospitality added 44,000 jobs, and the total B/D adjustment was 142,000 net new jobs created in March. Are you kidding me? Now, remember this is a MODEL that assumes these jobs were created, and then adds it into the report that we see! Hence, the reference by Mish that the BLS is 'marking to model', rather than 'marking to market' to use a term that we all now can relate to!
The meat of the jobs report is this (bolded items are jobs LOST, unbolded are jobs ADDED):
* 51,000 construction jobs were lost
* 48,000 manufacturing jobs were lost
* 12,000 retail trade jobs were lost
* 35,000 professional services jobs were lost
* 18,000 government jobs were added
This would explain why on main street the pain seems a lot worse than the historically low unemployment data shows. So, what is a more realistic gauge of the unemployment rate? Where are we if it is not 5.1% or so?
Mish goes on to declare:
"If you start counting all the people that want a job but gave up, all the people with part-time jobs that want a full-time job, etc., you get a closer picture of what the unemployment rate is. The official government number is 5.1% but Table A-12 suggests it is closer to 9.1%. I believe that is on the low side.Barry Ritholtz provides a chart on The Big Picture (courtesy of Econoday) showing us the NonFarm Payroll's Monthly & Yearly Change:Regardless, the trend in unemployment is now clear, it is rising sharply. Expect to see 6% this year. This report was a disaster."
Look at the trend, and the fact that we are looking back in these reports. It is clear that we are slowing, that we are most likely in a recession right now, that GDP in Q1 will show further contraction confirming this, and that unemployment is deteriorating at a faster pace. The next few months will likely show a continued rise in unemployment and jobless claims, as the damage from the credit storm reveals itself. The question that is being wondered right now is, how severe will the slowdown be! Obviously, stocks are betting that we are closer to the end and rallying on the notion that we are about to enter the exiting phase of the recession!
In a healthy economy, the US adds about 150,000 jobs per month. So far for the first three months of 2008, we have lost a total of 232,000 jobs! That is why SF Fed President Janet Yellen declared that the US economy has 'all but stalled and could contract' in the first half of 2008 (story via Reuters):
"It appears that growth in consumption and business investment spending has slowed markedly after years of robust performance, and, as a result, the economy has all but stalled and could contract over the first half of the year."Expect more weak economic data ultimately showing this recession's birthday for a few more quarters, as reports pick up on credit crunch's damage. Question is, how bad and for how long!
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Comments (3)
Noah,
If the fed doesn't stop the devaluation of our $$ its going to get ugly indeed. The dollar is no longer the world standard, countries are fleeing it as the value continues to plummit. Can you say OUCH!!! Those who bet on the ££ or the Euro should be laughing all the way to the bank. We have been losing jobs steadily since NAFTA, and with every free trade act our government signs, job loss continues due to wage inequalities across international borders. Meanwhile the fact that prices for everything from fuel to food are skyrocketing is starting to squeeze a bit equating to less discretionary spending. This will cause more job cuts in the next 2 quarters. and, even though the dollars are being created out of thin air to bail out companies holding bad paper, the foreclosure procession marches on with an increasing pace. The wonky worldwide weather and natural disasters are cause for concern as they are affecting food and fuel production and costs. China, Japan, and a few other countries have more money than we do and can better compete for scarcer resources. And isnt it ironic that the only sector reported to have actual growth was the government?? I don't think we are anywhere near the bottom, and I dont think we will find it in '08. There are too many players acting at once, and more yet unseen will take the stage as the year unfolds. I've no clue where the bottom is, but buckle up...its gonna be a wild ride!!!!
Posted by CR | April 5, 2008 12:39 AM
cr - i read a comment on TBP yesterday that sums it up good right now, since everyone uses stock markets as a barometer of the health of the economy.
Well most anyway.
Stocks are trading on everything but the kitchen sink worth of stimulus that the fed has thrown its way in the past 3-4 weeks. Of course stocks should rally! Now its expected the fed will cut more as jobs data was brutal and is worse than report actually states. So, I dont think stocks are pricing in the severity of the recession this time around. Just my opinion. This is way worse than after dot com bust, which was business driven after tons of jobs were created after Y2K and internet boom. This time around didnt see those jobs added, and its now a housing driven + consumer recession, while credit markets are in distress after their bubble burst.
Very different indeed. However, when I look right now, the dot com bust was way more painful than what we have seen thus far.
Posted by Noah | April 5, 2008 9:30 AM
The dot com bust didnt cause our currency to bottom out. I've never seen the dollar so weak against world currencies. I think its a leading indicator that we are in serious trouble this time.
Posted by CR | April 5, 2008 11:55 PM