The Big Picture | Employment

Housing Market Index (HMI) Falls to New Lows

Wednesday, July 16, 2008 | 01:29 PM

The July National Assoc of Homebuilders index fell to a record low of 16, down 2 from June and vs the expectations of an unchanged reading.

Present conditions and future expectations both fell and the Prospective Buyers Traffic went to a new low, falling 4 points.

Buyers traffic did rise in the Northeast but fell sharply in the Midwest. The South and West also had declines. Aside from the reduction in the access to credit and drop in confidence, the weakening jobs market is now having its impact too.

Here is the official chart:
>

The NAHB/Wells Fargo Housing Market Index Components (HMI)

NAHB measures the strength of the single-family housing market each month through surveys of NAHB members.
>>
I actually like Calculated Risk's chart much better -- showing the recessions clarifies things:

>

Sources:
NAHB/Wells Fargo Housing Market Index (HMI)
http://www.nahb.org/generic.aspx?sectionID=134&genericContentID=529
http://www.nahb.org/page.aspx/category/sectionID=134

NAHB: Builder Confidence Declines to Record Low
Calculated Risk, July 16, 2008 http://calculatedrisk.blogspot.com/2008/07/nahb-builder-confidence-declines-to.html

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Whining US CEOs: Economy is "Dismal"

Tuesday, July 15, 2008 | 06:45 AM

in Economy | Employment | Psychology/Sentiment | Taxes and Policy

The whiny CEO's of America are so wrapped up in their mental recession, they don't see how great the economy is: CEOs Portray a Dismal Forecast for the U.S. (Buncha bitches!)

Here's what these damned Chief Executive Kvetchers had to say:

"With the economy overtaking Iraq as one of the main issues this election year, Chief Executive magazine conducted a survey among CEOs between June 13 and June 27 in an effort to gauge CEO sentiment on the direction of the U.S. economy.

CEOs were asked which policy position they think the U.S. should take to increase or maintain American competitiveness as well as questions on which countries will generate the highest number of jobs and where the top paying jobs will be in the future.

An overwhelming majority of American CEOs believe that in order to create the highest paying jobs and maintain the U.S.’ economic competitiveness, the government needs to reduce taxes and regulation, privatize education and remove restrictions on trade . . .

Frustrated with the current economic policy, another CEO said, “The formula for international competitiveness is quite simple: minimal trade restrictions, predictable regulation, competitive tax rates, strong educational system, trade balance (not deficit), predictable currency, low interest rates, responsible fiscal spending and low corruption. Unfortunately, under the Bush administration, we have failed on many of the factors, with corruption and macroeconomic incompetence being the most insidious.”

-CEOs Portray a Dismal Forecast for the U.S. (emphasis added)

Can you imagine these ungrateful bastards actually complaining about the economic stewardship of this great nation? Geez, some people are never happy.

Hey! Would someone get please have Phil Gramm or Amity Shlaes give these whiny bee-yatches a call and straighten their asses out?

Thank you . . .

Sample CEO questions and charts:

Which country will be the greatest job creator in the future?

CEO Answer: China
>

Which country will create the most high paying jobs?

CEO Answer: USA

Source:
CEOs Portray a Dismal Forecast for the U.S.
Chief Executive Magazine, 7/11/2008
http://tinyurl.com/69hcfn

Persons "Marginally Attached to the Labor Force" +B/D

Friday, July 04, 2008 | 11:00 AM

in Data Analysis | Economy | Employment | Psychology/Sentiment

Early last month, we suggested that it would be more instructive if the media began reporting U3 and U6 Unemployment together. (Unemployment Reporting: A Modest Proposal (U3 + U6)

Northern Trust's Asha Bangalore appears to have been thinking along the same lines, for her NFP post-mortem includes the following:

Household Survey – The BLS also publishes information about marginally attached persons to the labor force. These folks are either discouraged workers or they want to work and are available but are not working and have looked for work in the recent past. If we sum the number officially unemployed, the number of marginally attached workers, and the number working part-time for economic reasons we obtain a more comprehensive measure of unemployment. This broader measure of unemployment rose to 9.9% in June (see chart 1) which is significantly higher than the 8.3% rate reported in June 2007.

Note how in the accompanying chart the typical (U3) as well as broader (U6) Unemployment measures are included. The trends are remarkably similar, but the scale on the left and right margins are quite different.

Mystery resolved: Household Survey, U3/U6 Unemployment

See also BLS: Table A-12. Alternative measures of labor underutilization

Herein lies one of the keys to of our ongoing discussions as to why the Public is so much gloomier than the Pundits. The pontificators and talking heads are looking at the official U3 scale at left, while the public in the real world feels the U6 scale at right.

A second chart similarly helps to reveal some of the differences between perception and reality: The Birth Death adjustment:

The Birth/Death adjustment factor has given an artificial boost to nonfarm payrolls as the economy has entered a recessionary phase. The inclusion of the birth/death adjustment process (the adjustment is a consideration of payroll changes occurring as small businesses are established and destroyed each month) has resulted in a decline of 167,000 seasonally unadjusted payroll jobs in the twelve months ended June 2008. Excluding the birth/death adjustment factor, payrolls have dropped 1.019 million in the same twelve-month period.

Non Farm Payroll, with and without Birth/Death Adjustment

Economic Anxiety Disorder

Friday, July 04, 2008 | 04:30 AM

in Economy | Employment | Financial Press | Video

Dana Milbank is brilliant:

NEVER LET THEM SEE YOU SWEAT

Source:
The Economy? Words Fail Me.
Dana Milbank
Washington Post, July 4, 2008; A03
http://www.washingtonpost.com/wp-dyn/content/article/2008/07/03/AR2008070303317.html

~~~

Employment Situation NFP Chart Porn

Thursday, July 03, 2008 | 11:00 AM

in Employment

No further words necessary

Year-Over-Year Changes, Employment Components

Via Jake

Temporary Help Services Employment

Via Bruce Steinberg.net

UPDATE II: July 3, 2008 4:25pm

Jake writes: For clarification, calculations in the chart are not percents of percents, but in fact the year over year change in the number of ACTUAL people in:

*The labor force
*Employed
*Unemployed
*Not in labor force

That's hugely helpful. Thanks, Jake

>

UPDATE: July 3, 2008 2:46pm

Political Calculations takes issue with Jake's chart up top (A Lousy Unemployment Chart and Bad Math) -- but I am unconvinced of their argument.

A percentage change of a big number is less than the same percentage change of a smaller number. Hey, that's how percentages work.

Request for assistance: How else would one depict the year-over-year change in a number that is itself a percentage? The goal is to convey information quickly and accurately.

I'm all ears for suggestions . . .

~~~

NFP -62,000, Big Revisions Downwards

Thursday, July 03, 2008 | 08:33 AM

in Employment

THE EMPLOYMENT SITUATION: JUNE 2008

BLS:

Nonfarm payroll employment continued to trend down in June (-62,000), while the unemployment rate held at 5.5 percent, the Bureau of Labor Statistics of the U.S. Department of Labor reported today. Employment continued to fall in construction, manufacturing, and employment services, while health care and mining added jobs. Average hourly earnings rose by 6 cents, or 0.3 percent, over the month.

NFP payrolls shrank for the sixth consecutive month.

The bog news was the revisions -- down another 52,000 for April and May. When we get these revisions next month for June, don't be surprised if we see a major change.

Also, note the Unemployment Claims jumped to 404k . . .

And now, the Birth Death Adjustment:

June 2008 was 177k versus June 2007 155k
Construction Gains +29k
Professional & Business Services +22k
Leisure and Hospitality +86k

The last is my favorite: Given the massive decrease in travel, an 86k gain in this sector is very hard to believe...

>
Birth Death Model Adjustments
click for jumbo table

Sources:
THE EMPLOYMENT SITUATION: JUNE 2008
BLS, July 2008
http://www.bls.gov/news.release/empsit.nr0.htm

NFP REPORT JUNE 2008.pdf

Birth Death Model
http://www.bls.gov/web/cesbd.htm

~~~

NFP Day: Caution is Warranted

Thursday, July 03, 2008 | 08:08 AM

in Data Analysis | Employment

Yeah, its that time once again: NFP day.

I am of the mind that forecasting this number is an exercise in futility. The "official" release does not seem to square with other data -- withholding tax, sentiment, earnings, and even anecdotal -- suggesting that employment is flaccid, and moving in the wrong direction.

Even the consensus this month is tough to track: 40k (Marketwatch), 50k (Barron's), 55k (WSJ).

Regardless of the folly of forecasting, I expect this month's NFP will be the first six figure job loss of this cycle. BLS has not released a drop of that magnitude since March 2003 -- just before the new Birth/Death model was implemented 5 years ago. Coincidence? I think not.

The trend of new job creation is down, while unemployment is up. Hence, I am definitely taking the Under this month. I suspect the consensus to be off by a magnitude of 2X or even 3X.

Consider the recent data:

• ADP private dropped 79,000 in June. ADP has consistently overstated payroll growth since their Jobs Surge forecast in December. Average overstatement = 93,000 per month (do the math yourselves)

• ISM employment fell from 45.5 in May to 43.7 in June, the lowest since May/03.

• Weekly claims for unemployment benefits continue to rise; Continuing claims last week were at their highest levels since Feb '04.

• Conference Board survey question ‘jobs are hard to get’ versus ‘jobs are plentiful’ is at its worst level in 5 years (December 2003).

• Challenger layoffs were 81,755 June, up 46.7% year-over-year in June.

• Major layoff announcements were up to 275,292 in Q2 -- a 39.4% year-over-year gain to a 3 three year high;

• Hiring plans are down 63.7% from a year ago and 36% month-over-month.

• Monster employment survey slipped again this month (Disclosure: We are short MNST)

Hence, we have the potential for a startling drop in NFP this month. Especially with this report, your mileage may vary . . .

Chart courtesy of Gary Shilling

Sources:
High Unemployment Ahead
Gary Shilling
Economic Research and Investment Strategy
July 2008, Volume XXIV, Number 7

Recession reality has not receded
David A. Rosenberg
Merrill Lynch, 02 July 2008
http://tinyurl.com/6yzymz

~~~

ADP: Minus -79,000

Wednesday, July 02, 2008 | 09:15 AM

in Data Analysis | Employment

Thursday is monthly NFP data. Consensus is for minus 60k -- I won't be surprised if we see double that, a six figure plus drop -- minus 100k.

But that's not due to ADP data. They have been wildly off over the past 6 months, under-forcasting job losses. (Recall their December 2007 Jobs Surge prediction).

My expectations are more of a call based on the weakening consumer, decreased credit availability, and the ongoing housing collapse. Challenger & Gray layoffs are running +47% Year over year.

The ADP Report is a rough number, but its not nearly as bad as it can get. As the chart below shows, we are not quite at full blown recession levels. Meaning, this can get appreciably worse.

Source:
The ADP National Employment Report, June 2008
Wednesday, July 2, 2008, 8:15 A.M. ET
http://www.adpemploymentreport.com/pdf/FINAL_Report_June_08.pdf

~~~

Pervasive Pollyannas of Prosperity

Wednesday, July 02, 2008 | 07:52 AM

in Economy | Employment | Financial Press | Psychology/Sentiment

David Leonhardt discusses a few items today which are regular discussion points here at TBP. My favorite lately is why the public is so much gloomier than the pundits:

"Pundits have been scratching their heads about why the public mood is so grim. Last week, Barron’s called the drop in consumer confidence “difficult to figure.” A front-page headline in The Washington Post claimed, “We’re Gloomier Than the Economy.”

But are we really?

For the first time on record, an economic expansion seems to have just ended without most families having received a raise. For the first time on record, the typical home price nationwide is falling. The inflation-adjusted value of the Standard & Poor’s 500-stock index has dropped 20 percent in the last year — and 30 percent since its peak in 2000.

I think the public has called this issue exactly right: the American economy has some real problems. Even if this summer’s downturn turns out to be mild, those problems aren’t mild — or simple — and they aren’t going away anytime soon. It’s going to take some real work."

That's spot on.

Want some more evidence? In light of tomorrow's NFP data, consider the chart below: Its an updated version of a chart we have shown repeatedly, looking at this cycle's employment gains compared to prior, post WWII, business cycles:

Chart courtesy of Spencer England Economic Research (SEER)

We have heard longstanding charges of liberal media bias, going all the way back to Spiro Agnew's Nattering Nabobs of Negativism (September 11, 1970). Whatever validity that Trojan horse might have ever had has now jumped the shark. Mass Media is owned by large corporate interests (Disney, Viacom, News Corp, Time Warner, etc.). If anything, the disconnect between reality and the "Pervasive Pollyannas of Prosperity" has rendered moot William Safire's catchphrase.

Indeed, the bias is precisely the other way -- between reality and ideological absurdity.

Its the Lite Beer marketing syndrome: If your product is pisswater, and fattening to boot, you never admit that in your advertising. Instead, you frame the debate as whether it "tastes great or is less filling." Its jiu jitsu marketing, turning your liability into an advantage. The misdirection is often effective.

How absurd has the Panglossian cheerleading become? On my pal Larry Kudlow's show last night, several of Candide's descendants talked about how great stocks are if you hold them for 30 years. That's right, the holding period for equities according to this crowd is three decades. Of course, this means every pullback is a buying opportunity. Words such as these can only be spoken by someone who has never worked on a trading desk or managed assets professionally -- or if they did, they lost most of their clients' money.

Rather than address why the public is so unhappy, the triple Ps toss charges of bias. Ignore the worst monthly Auto Sales since 1992, ignore the latest signs of consumer distress (Starbucks closing 500 stores). And when that stops working, PPP starts discussing the long run, ignoring the trading wisdom of Keynes. Its yet more evidence of the pollution of economics with partisan politics. Fortunately for most of the Pervasive Pollyannas of Prosperity, they don't have to live off their market calls. Those who invest based on their "Never say recession" worldview best have another source of income. Fortunately, most of the public isn't so easily misled.

~~~

As noted earlier, we are overdue for as bounce today. But this short term market noise will not change our long held belief that we are in for a slow-motion slowdown. And merely wishing it were otherwise won't change the grim reality of the situation.

Previously:
Are We Too Gloomy? (June 19, 2008)
http://bigpicture.typepad.com/comments/2008/06/are-we-too-gloo.html

Source:
Dispelling the Myths of Summer
DAVID LEONHARDT
NYT, July 2, 2008
http://www.nytimes.com/2008/07/02/business/02leonhardt.html

~~~

Who is Right: Professionals or the Populace ?

Monday, June 30, 2008 | 09:00 AM

in Economy | Employment | Energy | Psychology/Sentiment

Portfolio has an interesting discussion on what they term the "He-Said-She-Said" economy:

"Inflation, energy, home prices, and tax rebates. Ordinary Americans and Wall Street professionals are at odds on issues like these and others at the center of the current economic malaise, according to the CNBC/Portfolio Wealth in America survey. And these differences have implications for both the Federal Reserve and this year's congressional and presidential candidates.

For example, while Wall Street forecasters predict inflation will be fairly tame in the next year, at about 2.5 percent, 71 percent of the report’s respondents think prices will rise by at least 4 percent, and 50 percent expect inflation to run at or above 6 percent.

In the past month, the Federal Reserve has been trying to put a lid on inflation expectations, culminating last week with what was seen as a benign outlook for price pressures in the statement following its monetary policy meeting. Still, Americans don't seem to be hearing that message."

I heard Steve Liesman discuss this poll on CNBC. Steve, like so many other economists, is having a hard time with this conflict. Many of the dismal scientists believe in the wisdom of crowds, but they also are somewhat compelled by training to buy into the methodologies of their profession.

When the two schools of thought are directly opposite, you end up with a form of cognitive dissonance. This has accelerated as prices continued to go higher, even with relatively modest core inflation.

I have been surprised by how many reality-based economists -- including those on the left like Professor Brad DeLong and NYT columnist Paul Krugman -- were so reluctant to embrace elevated inflation as a genuine threat. There was a bit of a circle-the-wagons mentality about economics as a discipline. That seems to have faded in the face of elevated food prices and $143 Crude Oil.

Here's a suggestion: If the professional economists' data states that inflation is contained and unemployment modest, and at the same time the population sentiment is screaming as if neither were the case, perhaps its time we consider that it might be the data, and not the population, that is the source of our dispute.

Sentiment is now at levels last seen during deep ugly recessions. Perhaps the fault lies not with us American whiners -- but with the way the data is gathered, massaged and reported.

Something else to mullover: We have "enjoyed" practically full employment (i.e., very low unemployment levels) for several years now -- but wage pressure has been non-existent. That seems to be unusual to say the least.

As someone who has been skeptical about the artificially low inflation and unemployment rates for quite sometime now, the public's reaction makes a whole lot of sense. If we believe the negative sentiment of the American people, then its likely that Inflation has been much more pervasive than reported by either the top line or the core. And the same thinking likely applies to the low unemployment rate. If we judge by sentiment, perhaps its not as low as advertised. Ignoring widespread distress in the population is a recipe for major electoral changes.

Regardless of who wins in November, its time for a major rethink of the methodology behind BEA/BLS data . . .

Previously:

Consumer Sentiment Hits 28 Year Lows (June 17, 2008)
http://bigpicture.typepad.com/comments/2008/06/consumer-sentim.html

Are We Too Gloomy? (June 19, 2008)
http://bigpicture.typepad.com/comments/2008/06/are-we-too-gloo.html

Source:
The He Said, She Said Economy
Zubin Jelveh
Portfolio, Jun 29 2008
http://www.portfolio.com/news-markets/national-news/portfolio/2008/06/29/The-He-Said-She-Said-Economy

~~~

What Conspiracy?

Friday, June 20, 2008 | 07:33 AM

in Data Analysis | Economy | Employment | Inflation | Psychology/Sentiment

>
"All models are wrong; some are useful."
-George P. Box

I enjoy intelligent criticism. It forces you to tighten up your analysis, more aggressively dig up facts, communicate your position more effectively. Good criticism should be challenging, eloquent, and raise the argument bar -- making you sharpen your rhetorical pencil.

Then, there is the criticism that can be most charitably described as "wanting." These come in a variety of forms, ranging from the simple ad hominem attack to the complex Straw Man arguments, to the classic taking quotes out of context.

There are many other weak, disreputable forms of argument, and they all find a ready home in the blogosphere.

Lately, I have been noticing an increase in the conspiracy accusation. In particular, our many discussions on the systemic understatement of Inflation or Unemployment gets derided as "There goes Ritholtz again with his conspiracy theories!" This one statement manages to combine all 3 rhetorical errors mentioned above above into one lazy and dishonest argument.

Today, we spill a few pixels on this, and what it might say about current society.

Let's begin with how BLS models are constructed and function in the real world. I find this complex subject to be quite fascinating. The entire statistical output from the various governmental data bureaus is like a giant crossword puzzle, Sudoku and murder mystery wrapped up in one. Dissecting the publicly available data, teasing out nuance, placing the snapshot into the context of the larger moving picture is a delightful intellectual exercise.

I can understand that these sorts of puzzles are not for everyone, but I simply cannot fathom how they can be so easily dismissed. Rather than address the gravamen of these intriguing mathematical conundrums, they are simply waved away. Conspiracy theory! Tin Foil Hats! Nut Jobs!

I began this post with a little known quote, which I will slightly modify "All models are flawed, but not worthless." (~~I misplaced the author's name~~ Thanks!).

The issue is not whether any specific model might be wrong: ALL MODELS ARE BY DEFINITION WRONG. They are approximations, a numerical depiction of a small portion of universe. The true question for interested statisticians, mathematicians and economists is "just how wrong are they?" And, is there any inherent bias in the model? Are the errors random, or systemically leaning in one direction?

This is not, as some have implied, a question of nefarious cabals or governmental conspiracies. It is simply a mathematical reality.

For example, we know that the way Inflation is measured has changed over the years. The focus on the core rate, variable weighting of items in the CPI basket, the changes from the Boskin Commission -- these all end up altering the output of the monthly inflation data. All of the changes to the BLS inflation methodology are released by BLS, painstakingly footnoted, and very, very public.

An even better example is the BLS expansion of the Birth Death model. To grossly oversimplify, BLS statisticians identified a shortcoming in the way the Establishment Survey (CES) picks up new jobs from start up firms. Rather than interview people at home (which the Population Study (CPS) study does to determine the unemployment rate), CES takes data from employment tax filings at existing companies. However, economists believe that new job creation in the US comes disproportionately from new firms. In order to capture the jobs which were being missed by the old CES methodology, the BLS expanded a B/D model. Now, they use new incorporation filings by State, and a formula that deduces how many new jobs go along with these newly born firms.

My criticisms about this are legion, but none claims this is a hidden conspiracy or political manipulation by the BLS. The fix corrected an undercount in the beginning of an economic cycle, but created an over-count at the end of the cycle. But the changes to the Birth Death model are all very public, and well documented.

All of the various economic models used by the Bureau of Economic Analysis, and the inputs and algorithms involved, change the output that gets published as your favorite monthly data point. No conspiracy, just models that have inherent flaws -- and those flaws seem to have a systemic bias to make things like Inflation and Unemployment look better than they really are.

As I have said repeatedly over the years, all of the data is there -- its released in a variety of forms, raw, non-seasonally adjusted, monthly, year-over-year. You just have to fight your way through it. Here's what we said on the subject last year:

"One of the things people do not understand is a basic truth about the BLS, BEA, Commerce Department, and other government data sources. I get constant emails warning me of the dark cabals manipulating the official releases.

While I have been critical over the years of the models and methodologies employed, I do not believe this is any grand conspiracy.

Sure, the headlines are often misleadingly spun, but the data is all there for whoever wants to peruse it. Indeed, if you strap on your green visor, you can find all of the data releases for Inflation, Unemployment, GDP, New Home Sales, Durable Goods, etc. The non-seasonally adjusted, non-hedonics, no substitutions data is all right there. You need only bring a critical eye and a dollop of skepticism, and you can usually deduce the real meaning beneath the spin."

That is my long held view. You are free to disagree with it for any number of reasons. You might recognize the error, but think it is so small as to be meaningless. Maybe you think the errors are random, not systemic. Perhaps, you think there is a conspiracy. Maybe you believe the BLS models -- unlike every other model ever created by mankind -- are flawless. These are legitimate disagreements amongst people of different viewpoints.

However, if your intellectual sophistication and analytical acumen is at a level where you find it easier to claim that those who disagree with your views on inflation, employment and GDP wear tin foil hats and consort in Area 51, well that's just so much intellectual detritus, and I am calling you out on it.

Your dismissive comments are lacking in critical rigor. They are analytically vapid, and reflect a mental laziness that I personally find offensive. This is my pushback to the creeping anti-intellectualism that has been working its way into all too many fields. And, it has no place in what was once considered a thoughtful and analytical discipline: Market analysis and economics.

There is a silver lining: They put the reader on notice that they are dealing with an intellectual lightweight, a political hack, someone not worthy of any further expenditure of your limited time and finite attention.

Its one thing to see this sort of thing on blog comments -- I expect no less from anonymous cowards; However, I refuse to tolerate this sort of nonsense on actual blog posts by authors who should better.

~~~

Previously:
No Conspiracy Theory -- Just Data (November 2007) http://bigpicture.typepad.com/comments/2007/11/no-conspiracy-t.html

~~~

Other Worthwhile Conspiracy Discussions:
Does the Government Understate Inflation? http://www.fundmasteryblog.com/2008/06/17/does-the-government-understate-inflation/

Why Bears Always Have the Best Arguments http://paul.kedrosky.com/archives/2007/12/13/why_bears_alway.html

Merrill's David Rosenberg goes postal on the inflation conspiracy theorists
http://time-blog.com/curious_capitalist/2008/06/merrills_david_rosenberg_goes.html

Statistics as a government plot
http://www.scsuscholars.com/2008/06/statistics-as-government-plot.html

~~~

Anonymous Cowards:
Area 51 coment
http://www.dealbreaker.com/2008/02/hot_ladies_talk_money_with_bal.php

JMF Comment
http://blogs.wsj.com/economics/2007/08/21/four-types-of-views-on-feds-next-move/

~~~

Hall of Shame:

Thinking About Butterflies Randomosity
http://thelearningcurve.blogspot.com/2008/05/thinking-about-butterflies-randomosity_08.html

SCOOPED BY MUCKDOG
http://oldprof.typepad.com/a_dash_of_insight/2008/05/scooped-by-muck.html

Role of proprietary trading at banks http://finaxyz.blogspot.com/2008/01/role-of-proprietary-trading-at-banks.html

How To Understand Inflation Data http://seekingalpha.com/article/24572-how-to-understand-inflation-data

When making money becomes too easy.......
http://stockbee.blogspot.com/2006/11/when-making-money-becomes-too-easy.html

The Conspiracy to Keep You Poor and Stupid
http://www.poorandstupid.com/

~~~

Unemployment Reporting: A Modest Proposal (U3 + U6)

Thursday, June 12, 2008 | 06:30 AM

in Data Analysis | Employment | Taxes and Policy

Earlier this week, I received an email from the Real Estate editor of an (unnamed) publication. They wrote:

"Just wanted to point out something I read in a Wall St. Journal article that made me think of you immediately. (Home Gauge Climbs Amid Bargains)

"April pending home sales—meaning signed sales contracts—rose 6.3% from March to a level of 88.2, the highest in six months, the National Association of Realtors said. A reading of 100 is equal to the average level of sales activity in 2001. Pending sales typically lead actual sales by a month or two, but may overstate strength because of sales cancellations. Existing-home sales data for May will be released June 26."

There's no question in my mind, that the part in bold above was inserted as a result of your persistent efforts to point out how skewed sales data reports are. At the very least, I believe your repeated exhortations on the matter have contributed to more accurate reporting of home sales data on a national level."

Thank you, JW. Your kind words helped crystallize some of my thoughts on a related "misreportage" -- the way the US FinPress reports the Unemployment Rate.

U3 is the "official unemployment rate" according to the BLS website. Due to this, it is the current measure of Unemployment that gets focused upon by most media, and therefore the public. It has, over the years, slowly excluded many of the factors that USED to go into how the US reported unemployment. Hence, there has been a gradual decrease in the Unemployment rate that has occurred regardless of what was happening in the Jobs market.

U3 is now comprised in a way that merely repeating it without a slew of caveats borders on fraud.

U6, on the other hand, is the broadest measure of Unemployment: It includes those people counted by U3, plus marginally attached workers (not looking, but want and are available for a job and have looked for work sometime in the recent past), as well as Persons employed part time for economic reasons (they want and are available for full-time work but have had to settle for a part-time schedule).

To be honest, I do not know what the true Unemployment rate actually is; I believe it is considerably higher than U3 (by 100s of basis points), but I suspect it might be lower than U6.

Here is a modest proposal for all of the poor scribes (like me) who slog through the monthly NFP report: For the sake of more accurately describing the conditions in the labor market, let's begin reporting two measures of Unemployment: U3 as well as U6.

Its been pretty obvious for sometime that the Financial Media are doing a disservice to their readers by only reporting U3, given how dramatically it understates Unemployment. Indeed, consumer sentiment reports are at deep negative levels that only occur when Unemployment is much than what U3 has been saying. It is painfully obvious that U3 does not paint an accurate view of the Employment situation.

Its way past time to fix that.

Here's the experiment I propose: Let's start reporting both, with appropriate descriptions of each. Report U3, add U6, provide monthly and year over year changes. Let the reader see the full picture, via BLS data.

Here is how I would have reported the Unemployment portion of April's 2008 NFP:

"The number of unemployed persons was little changed in April. U-3, the official unemployment rate as a percent of the civilian labor force, was 4.5%. Itis only modestly elevated from one year earlier, when it was 4.3%.

U-6, the broadest measure of total unemployed*, was also little changed at 8.2%. It is up from 7.9% one year ago.

_______
* U6 includes U3, plus discouraged workers, those working part time who want a full time position, plus marginally attached workers. It is the broadest measure of Unemployment."

That presents a much more complete and accurate picture of what the employment situation is actually like. This doesn't require any math, or massaging of the numbers -- its just passing along data directly from BLS in a more inclusive and accurate way.

The Bureau of Labor Statistics, to its credit, provides lots more data on inflation, unemployment, GDP , etc. than ever gets reported in the mass media. Few people seem to want to slog through the numbers to get at the details of the economic picture -- and that's a shame.

The Financial press can provide a more accurate picture of what's going on with a slight modification of how they present the BLS releases. Its long overdue.

Let's take the data and statistics out of the hands of the politicians and spinmeisters. As a nation, we would be better off for it.

~~~

Jobless Claims today out at 8:30am today.

Alternative Measures of Labor Underutilization

Sources:

Table A-12
http://www.bls.gov/news.release/pdf/empsit.pdf

BLS introduces new range of alternative unemployment measures
John E. Bregger , Steven E. Haugen
BLS, October 1995
http://www.bls.gov/opub/mlr/1995/10/art3full.pdf

Measuring Unemployment in the Nineties
Janet L. Norwood and Judith M. Tanur
The Public Opinion Quarterly, Vol. 58, No. 2 (Summer, 1994
http://www.jstor.org/pss/2749542

Historic Annual Employment (Note: footnotes in each year track major changes)
BLS, 1942 to date
http://www.bls.gov/cps/cpsaat1.pdf

HISTORICAL COMPARABILITY Household Data
Employment and Earnings, February 2006
http://www.bls.gov/cps/eetech_methods.pdf

Faber Says Oil, Stocks, Real Estate Are Overvalued

Wednesday, June 11, 2008 | 03:30 AM

in Economy | Employment | Energy

click for video

Excerpt:

"Stocks, property and commodities are overvalued as an economic slowdown and inflation will curb earnings growth and erode the value of assets, investor Marc Faber said.

Oil may have peaked after a 43 percent increase this year, said Faber, the Gloom, Boom & Doom report publisher, in a Bloomberg Television interview today. He said he favors the dollar against the euro, as well as gold.

"I don't see any compelling value in equities, real estate or commodities,'' Faber said from Zurich. ``Contrary to the last 25 years, we are in a period of de-leveraging. Corporate profits in particular are still far too high for 2009 and have to be adjusted downwards, and valuations become less compelling.''

Source:
Stocks, Real Estate and Oil Are Overvalued, Marc Faber Says
Carol Massar and Alexis Xydias
BLOOMBERG, June 9 2008
http://www.bloomberg.com/apps/news?pid=newsarchive&sid=a6vr3uRGjrvw

Enhanced Misery Index

Tuesday, June 10, 2008 | 11:53 AM

in Data Analysis | Employment | Inflation

Yesterday, we asked what the Misery Index would look like if the CPI and Unemployment were reported honestly.

A colleague at Credit-Suisse suggested adding in the annual change in house prices to the misery index. Suddenly, we can see that the consumer is in as much pain as in the early nineties and the early eighties.

Enhanced Misery Index
(added the annual change in house prices)

If house prices, Unemployment and CPI carry on as expected, this index will be at all time high within a year.

By way of comparison, the old format misery index is below:

Traditional Misery Index

Rosenberg Sees 'No Better' Than 1% U.S. Growth in 2009

Tuesday, June 10, 2008 | 03:30 AM

in Economy | Employment | Video

Merrill's Chief Economist is not very sanguine on the odds for a quick bounce back.

Audio: Rosenberg Sees `No Better' Than 1% U.S. Growth in 2009

David Rosenberg, chief North American economist at Merrill Lynch & Co., talks about the May U.S. employment report, the possibility of "stagflation" in the U.S. economy and the outlook for growth.

00:00 Jobs report, outlook for U.S. economic growth
07:31 Home prices; inflation-commodity price link
13:00 Home market outlook; "It's not stagflation."
15:55 Bond spreads; consumer price inflation
19:41 Is America ready to retire?

Running time 21:05
Last Updated: June 6, 2008 17:49 EDT

Source:
Rosenberg Sees 'No Better' Than 1% U.S. Growth in 2009: Audio
Bloomberg, June 6 2008
http://www.bloomberg.com/apps/news?pid=newsarchive&sid=azFFQSoEKDOc

Hedonically-Adjusted, Well-Spun, Nominal Misery Index

Monday, June 09, 2008 | 11:30 AM

in Employment | Inflation | Politics | Taxes and Policy

Numerous pundits have taken to claiming that the Misery Index -- a combination of Inflation measures and Unemployment -- is still relatively low when compared with the 1970s.

~~They are full of shit~~. I have to call shenanigans on that foolishness. The way Inflation and Unemployment are measured today versus 30 years prior makes this an apples & oranges comparison. Merely showing 2008 versus 1973 is nonsense (see the chart of the misery index, below via the WSJ).

Why? If we were measuring Inflation & Unemployment the way we did in the 1970s, we would see unemployment much closer to U6 Unemployment levels of 9.7% (versus the popularized headline inflation level, U3 now at 5.5%); the inflation measures would see an greater differential -- CPI might be closer to 10+.

That would put the Misery Index somewhere between 17 and 21 -- pretty close to the 1970s highs.

(If any of you chart wizards can figure out how to create a more accurate Misery Index, please tag me. I figure we can use U6 for Unemployment, but I am not sure where to get more accurate data history for CPI)

Miserable Index:

Chart courtesy of WSJ

Compare the above chart above with the two below:

Inflation, Pre-1983 Measures

Unemployment, Various Measures

courtesy of Harpers

Source:
Recession Fears Reignited
KELLY EVANS and KRIS MAHER
WSJ, June 7, 2008; Page A1
http://online.wsj.com/article/SB121279701661353763.html

A Perfect Recession Indicator

Sunday, June 08, 2008 | 07:31 AM

in Economy | Employment

The NYT's Floyd Norris notes that the 12-month change in private sector jobs is down 125,000 jobs from may 2007 to May 2008.

Since 1953, this indicator has a perfect record, identifying 9 out of 9 recessions. When it flips negative (year over year), the economy is already in recession each and every time:

• December 1953, the figure turned negative six months after the recession was later determined to have begun. (negative for 14 months).

• October 1957, it went negative three months after the recession began (negative for 15 months).

• December 1960, the negative jobs figure came 9 months after the recession started (negative for 10 months).

• July 1970, it turned negative 8 months after the recession began (negative for 13 months).

• November 1974, the first negative number came a year into the recession. (negative for 14 months).

• June 1980, the recession was 6 months old when the negative number arrived. (negative for just 6 months).

• January 1982, the negative number came 7 months after the recession started (negative for 17 months).

• December 1990, the first negative number came 6 months into the recession (negative for 17 months).

• June 2001, the recession was 4 months old. The job change number stayed negative for 30 months -- the longest streak ever.

Caveat: These numbers are based on revised, not original reported data. So if the data somehow gets revised upwards, this recession signal will go away. But I agree with Norris that revisions are much more likely to make the data more negative, not less . . .

~~~

Jimmy P, put the hallucinogens away, and fire up Amazon: my preferred version of Blade Runner is the Five-Disc Ultimate Collector's Edition . . .

Source:
Jobs Show Recession Is Here
Floyd Norris
NYT, June 6, 2008, 4:29 pm
http://norris.blogs.nytimes.com/2008/06/06/jobs-show-recession-is-here/

More on May 2008 Employment

Saturday, June 07, 2008 | 07:22 AM

in Data Analysis | Economy | Employment

As a follow up to our NFP extravaganza yesterday, here are a few additional items you may find informative:

Yesterday, we noted the big jump in Unemployment (a historic outlier) and wondered aloud whether it might be attributed to, in large part, a seasonal aberration of the younger set, the teens and 20-25 year olds.

As it turns out, not so much: Philippa Dunne and Doug Henwood of the Liscio Report have crunched the numbers, and they suggest the impact of Teens is de minimis. In an email I received late last night from Philippa, she writes:

"Teen unemployment rose 3.3 points, which was probably exaggerated by some calendar issues. But teens are less than 5% of the workforce, so they contributed just 0.2 point of the total rise. Adult unemployment rose from 4.5% to 4.8% - and it was a