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More NFP: Worse than Reported

Monday, April 07, 2008 | 10:00 AM

in Data Analysis | Economy | Employment | Psychology/Sentiment

This weekend, we noted that in terms of job creation, the 2002-07 post-recession recovery was the very worst in the post-WWII era. This was in response to the pundit commentary that job losses aren't nearly as bad today as the 2001 mild consumer-led recession.

Since so many t-heads want to compare the two cycles, let us hasten to point out a critical difference between the two: Birth/Death Adjustment.

As we have discussed ad nauseum, prior to 2002, the B/D adjustment had a minor impact on total BLS reported job creation. Since 2003, the B/D adjustment has been part and parcel to BLS' Current Employment Statistics (CES) program, the official measure of US employment. In brief, the Birth Death adjustment hypothesizes how many jobs were created by companies too new to participate in the CES survey.

Since this major change in modeling was effected, Birth Death jobs are much more significant, rising to the point where in 2007, the B/D accounted for over 80% of all BLS reported jobs. Thus, comparing the two periods is an apples & oranges affair.

Example: Consider the by-any-measure-ugly March NFP report. In the present environment of Construction and Finance problems, was it reasonable for BLS to hypothesize a Net Birth/Death jobs increase to 142k for March? This was an 11% improvement over March 2007 B/D adjustment of +128k. According to the BLS, new business creation is significantly more robust than last year.

And even more egregious, these hypothesized (i.e., fictitious) were unfathomably in areas that are furiously laying off people: +28k jobs in construction, and +6k in financial activities.

Bill King points out that in the same CES report of NFP, construction lost 51,000, manufacturing dropped 48,000, retail and trade lost 12,000, while professional services dropped 35,000. Yet the B/D Model somehow managed to create jobs in all these categories.

Previously:
NFP: Birth/Death Adjustments (December 2007) http://bigpicture.typepad.com/comments/2007/12/more-on-birthde.html

How Strong is this Jobs Recovery? (December 2005) http://bigpicture.typepad.com/comments/2005/12/how_strong_is_t_1.html

The Accelerating BLS Birth/Death Adjustment (August 2007) http://bigpicture.typepad.com/comments/2007/07/the-accelerat-1.html

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

Current Employment Statistics (CES)
U.S. Department of Labor
Bureau of Labor Statistics
http://www.bls.gov/sae/home.htm

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Comments

Reality may not always be the first one to the party these days, but history shows she is without fail the last one standing. Drink up. She will wait to be "priced in". No hurry.

Posted by: 12th Percentile | Apr 7, 2008 10:23:21 AM

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