Wednesday, December 9, 2009

Dave’s Top 10 Reasons To Dismiss Last Friday’s Unemployment Report

By David Goldman

Over at Asia TImes Online, I take apart the Friday BLS report. Market reaction was amusing: every hedge fund in the world appears to have been offsides, and forced to liquidate gold and commodities. Central banks will be happy, particularly the ones who want to accumulate gold. The last thing they want is for hedge funds to run in front of them. Weak hands will be shaken out, but I think there is a buying opportunity here: the US economy remains extremely weak.

Here are my Top 10 Reasons to scrooge the BLS report:

Nearly 300,000 people disappeared from the labor force, yet the BLS reports no increase in “discouraged workers” or workers forced to take part-time jobs for economic reasons.

9. Private sector service jobs supposedly increased by 51,000, yet the National Institute of Purchasing Managers’ (NIPM) survey shows that services employment fell during November. The unexpected drop in the NIPM report, which is a reasonably good advanced indicator of economic activity, doesn’t square with the BLS report.

8. The reported improvement in services was driven by an 86,000 increase in temporary employees in “administrative and support services”. There almost certainly is an element of truth in this report, but it is not necessarily good news. The biggest hiring boom stems from the huge backlog of home foreclosures. With one out of eight American homeowners behind on mortgage payments, the Wall Street Journal on November 19 reported, “Mortgage restructuring for strapped homeowners has emerged as a rare growth area in the economy as companies in the field keep hiring. Four of the largest mortgages servicers - Bank of America Corp, Citigroup Inc, JP Morgan Chase & Co and Wells Fargo & Co - have collectively hired almost 17,000 people this year, mostly to work with financially ailing homeowners. With the number of defaults rising, many are planning to keep adding staff.”

Goods-producing industries lost 69,000 jobs by the BLS count, about equally divided between manufacturing and construction - yet the “recovery” supposedly is led by manufacturing.

6. ADP, America’s largest processor of payroll information, publishes an independent survey of employment based on its own data. This is somewhat less comprehensive than the BLS data, but far more reliable. ADP reported a loss of 169,000 jobs, compared to only 11,000 for the BLS survey.

5.The correlation between changes in the BLS employment measure since 2000 is about 95%, and the discrepancy between the BLS number of 11,000 jobs lost in November versus the ADP number of 169,000 jobs lost lies at the extreme range of error for the two series.

4. The job losses reported by ADP are equally split between goods-producing and services. It simply doesn’t make sense for ADP to show nearly identical job losses for goods-producing and services, while BLS shows a big jump in services employment combined with a big drop in goods-producing employment.

3. One of the brightest spots in the BLS report was a 12,600 increase in health services employment. Yet a forward-looking indicator of demand for health-service employees, the online advertising index for health-care jobs, fell in November to an all-time low of 83 (from an October level of 96 and a year-earlier level of 111).

2. According to the Conference Board’s monthly survey of consumer confidence, “Consumers’ assessment of the labor market deteriorated moderately. Those claiming jobs are ‘hard to get’ increased to 49.8% from 49.4%, while those claiming jobs are ‘plentiful’ decreased to 3.2% from 3.5%.”

And the top reason not to believe the BLS report is:

The level of un- and underemployment is so huge by historical standards as to make the usual sort of measurement questionable. With nearly 20% of the population unable to find proper work, there is a different sort of workforce. The vast majority of job creation in the US during the past two generations came from small businesses, which display only vaguely on the radar of government agencies as well as the bigger private surveys. The financial crisis killed small entrepreneurs as surely as Joseph Stalin killed the kulaks, and the roots of the economy are dead and dry.

No comments:

Post a Comment