My pal John Mauldin, as always, has the truth behind yesterday’s NFP report. Between census workers heading for permanent Happy Hour, silliness out of the birth/death model (65,000 construction jobs? sure.) and some confusion over how the rate actually dropped to 9.5% (less people being counted), Mauldin’s newsletter is a must-read if you truly seek to understand where we’re at in this economy…
Here’s what he had to say this week on the jobs front:
Some Really Dismal Numbers
The unemployment numbers this morning were just bad, even though the spin doctors were out in force. Of course we knew that because of census workers being laid off the number would be negative, and it was, down 125,000. But the “bright spot” we were told about was that private payrolls came in at 83,000 new jobs. Let’s look at what you did not see or hear.
First, last month’s dismal (there’s that word again) private job-creation number was revised down from 41,000 to 33,000. So in two months, total private job creation is 116,000 jobs. We need 125,000 jobs per month just to keep up with population growth.
But it is worse than that. The headline number we look at is from the Establishment Survey. That means they call up existing businesses they know about and ask them how many people are working for them, etc. One of the first things I do when the employment numbers come out is look at the birth/death assessment on the BLS (Bureau of Labor Statistics) web site.
For new readers, the birth/death assessment has nothing to do with people dying, but rather is the BLS’s attempt to estimate the number of new businesses that have been created or have “died” within the last month, and they use these numbers to adjust the employment total. They use historical, seasonal numbers to create a model from which they make these estimates. There is nothing conspiratorial about the numbers – they have to make an attempt at such an estimate, otherwise the employment number would be badly off. But the birth/death number can skew the totals a lot more than is typically realized.
Take the last two months. Using the birth/death model, the BLS assumes that 362,000 jobs were created somewhere. That is three times the number of jobs in the headlines we read. Those extra jobs were added into the total because that is what the model told them to do. And over a complete business and employment cycle, those numbers will average out to be pretty close to right. But as I said, they can also be misleading in the short term. Let’s look closer at some of the details.
The B/D adjustments say that we added 65,000 construction jobs in the last two months, over half the total number of jobs created. Really? US single-family homes set an all-time low sales number this week. Mortgage applications are way down. Home construction is off. Commercial real estate construction is down. Where are those construction jobs?
158,000 new jobs have supposedly been created in the hospitality and leisure industry in the last two months. And that is consistent with what normally happens in summer time. Typically, these are lower-paying jobs. (I worked a few myself while in college.) In the actual numbers, as surveyed, they estimated only 33,000 new jobs in L&H, so the B/D adjustment accounted for nearly all the positive number.
But what happens is that most of those L&H jobs go away in the fall, so then the B/D adjustment goes negative. Further, I am not sure we can assume a typical cycle here, to base the B/D number on.
(One more thing to complicate all this. The headline number we see is seasonally adjusted, but the B/D assessment isn’t. And we just won’t go there. That’s way too much “inside baseball” sort of trivia.)
But look at this chart from my favorite data maven, Greg Weldon ( www.weldononline.com). It shows that the number of people planning vacations is way down, dropping by over 35% in the last three years, for the second lowest number ever. Ever.
That is not consistent with a typical hospitality and leisure job-growth pattern. I have three kids working in that field, and the talk is not of robust job creation or lots of overtime. (By the way, my Tulsa readers should go to Los Cabos for some good Mexican food and leave my daughters Abigail and Amanda some really big tips! And make sure they get your name and address.)
Unemployment Went Down?
We were told that the unemployment number dropped from 9.7% to 9.5%. That’s a good thing, right? Well, no, not really. The number dropped because the number of people counted as being in the labor force dropped. If you haven’t looked for work for four weeks, you are not counted as unemployed. If you add those who were taken off the rolls back in, the unemployment number would have risen to 9.9%. In the past two months nearly one million people have dropped out of the labor market.
If you counted all the people who would take a job if they could find one as unemployed, the unemployment number would be closer to 11%. As an aside, if I have any real beef with the BLS over how they create their data, it is this last point. If you would take a job if you could get one, you should be counted as unemployed. Period.
The Household Survey was rather dismal. (This is where they call households and ask about their employment situation.) The survey showed a loss of 301,000 jobs, or 363,000 jobs if you adjust it to match the Establishment Survey. Not pretty.
Maybe a better way to look at unemployment is to look at the percentage of the total population that has a job. That number has been rising off and on for almost 50 years as more and more women have moved into the labor force. But notice the large drop over the last year – almost 5% of working people in the US have lost their jobs.
The initial unemployment claims 4-week moving average stubbornly refuses to go down any further. It has essentially gone sideways for over 6 months.
If you go back and look at the data from the last 45 years, the current level is typical of recessions.
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