Analyzing The REAL Jobs Report
A: We got some good news this morning on the jobs report between a less than expected loss of jobs, and a ticking down of the unemployment rate. Stocks are understandably rallying on the lack of a doomsday report. While I enjoy seeing the stock market rise, as it provides a positive wealth effect and helps to support confidence in general for other types of investments (i.e. real estate), I do not enjoy being told something that is a bold mis-representation of the truth. For all those that understand the BLS B/D adjustment model, you will see why this report was paints such a misleading bullish picture. You may wonder why this report seems to contradict reality; it does.
I've discussed this before, and Barry Ritholtz has been one of the biggest voices trying to bring the B/D adjustment crapola to light. Here is the quick definition of the B/D adjustment in the jobless claims report, before I go into today's discussion of fantasy (what we are told) and reality (what is really happening):
B/D Adjustment - 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.
Here is the B/D adjustment for April's Non-Farm Payroll's report, directly from BLS.com:
I am NOT making this up, this is REALITY and the report published to the public actually calculated in an ADDITION of 267,000 jobs! Are we really to believe that our economy actually added this many jobs? Let's just look at a few sectors and compare the fantasy vs reality!
Reality ---> Lost 61,000 Jobs
B/D Fantasy ---> Added 45,000 Jobs
PROFESSIONAL & BUSINESS SERVICES
Reality ---> Added 39,000 Jobs
B/D Fantasy ---> Added 72,000 Jobs
Reality ---> Lost 46,000 Jobs
B/D Fantasy ---> Lost 10,000 Jobs
LEISURE & HOSPITALITY
Reality ---> Added 18,000 Jobs
B/D Fantasy ---> Added 83,000 Jobs
If we only look at these sectors, we will see the following discrepancy between reality and the B/D fantasy adjustments that are added to the report that we see:
REALITY ---> We LOST 50,000 Jobs
B/D ADJUSTMENT FANTASIZES ---> That We ADDED 190,000 Jobs
Right there, we have a swing of 240,000 jobs that was bullishly embedded into the jobs report; using the seasonally adjusted b/d adjustment! AM I MISSING SOMETHING HERE; If I am please do tell me!
This frustrates the hell out of me, and explains why things seem much worse in the real world when stocks and economic reports show otherwise. For the first 4 months of 2008, and using the fantasized data & b/d adjustment model, we STILL LOST ABOUT 260,000 jobs! In a normal growing economy, we should be adding about 150,000 jobs per month. Yet, with all these jobs lost and the smoke & mirrors used to minimize the REAL PAIN that is going on out there, the unemployment rate ticks down to 5%! The reason: the number of part-time workers who wanted to find full-time work but couldn't, surged to 306,000.
I just don't buy it! BR correctly points out:
• Private payrolls have fallen for five straight months. Weakness in the goods-producing sector is intensifying;
• Employees working part time jobs is +306k this month to 5.2 million. This increase is either because a) Hours have been curtailed; or B)They cannot find full-time employment. Note that if your hours get cut back, you do not show up in the NFP or layoff data.
• As noted earlier, the Birth/Death model was a major distortion. (in several months, we will get the revisions). Lets look at how the B/D has changed from April 2007 (+262) to April 2008 (+267):
+45k construction jobs v 37k April 2007
+8k jobs were added in financial activities versus 1k last April.
+72k in professional/business services versus 48k last April.
+83k in leisure/hospitality (95k last April).
I am certain that some country on some planet in our galaxy is adding more jobs in construction and finance versus one year ago, but it ain't the USA on planet Earth, that's for sure.