Its that Time Again: NFP
Well, its the first Friday of the month, and you know what that means: Non-Farm Payroll report. Consensus is for 180,000.
Since its been working for me for so long, I am sticking with "the Under."
This month, several factors support that bet (tho I'm sticking with it merely as an ode to trend). The WSJ's Justin Lahart (Ahead of the Tape) notes that "a recent spate of layoffs might pressure the number" . . . as well as the "Conference Board's July consumer-confidence survey, where the number of respondents who said jobs are "hard to get" outnumbered those saying jobs are "plentiful." At the same time, staffing firm Monster Worldwide said its employment index fell in July."
Still, there are some who are predicting a 225 plus NFP.
A number of you have written in asking why I disparage the Birth Death adjustment.
The Birth Death model does not do that. It is an artificial construct that guesses how many new businesses were formed or dissolved, and then adds to that guess another guess as to how many new jobs those new business created.
I have very little interest in the BLS' theoretical models of how many new firms were created or destroyed. That's not data -- its a theory. Its very easy to build in an inherent bias to the model -- we know all models have bias in them, and as we've seen, the government's is invariably towards overstating growth and understating inflation.
Now consider the B/D model. Its sole purpose is to juice up NFP numbers. Given the notorious lack of survivability of new ventures, how hard is it to accurately define the number of new businesses? They wink in and out regularly. For every successful start up, there are 10 firms that die within a year.
My concern is getting an accurate read on the true state of the economy. I want to know what people are earning, how that will impact consumer spending, business investment, corporate profits, and ultimately stock and bond prices. Everything that interferes with that process suffers my disdain (and deservedly so).
If the BLS' goal is to accurately measure new job creation, than I say GO MEASURE IT. If, however, the motivation is to "purtify" the data, then there are lots of mathematical sleights of hand available for just that purpose. B/D adjustment is one of them.
UPDATE: August 5, 2005 9:04am
Brian Reynolds has pointed out in the past that because the B/D model is not seasonally adjusted, the January B/D adj. (post holidays) and July (less Students working in schools) numbers tend towards the negative. That was again the case this month, as July saw a negative 76k -- meaning hte NFP data may have actually understated Job creation this month . . .
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i'm predicting the nfp headline number will be over. i agree with you and i don't think the BLS adjustments reflect an accurate picture.
Posted by: sidney falco | Aug 5, 2005 8:06:34 AM
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