Written by Steven Hansen
The January 2012 BLS jobs report was mixed. This was not a report to break out the champagne.
- the real unadjusted jobs lost comparing the changes between December and January appears to be average historically – and the loss is more than January 2012.
- economic intuitive sectors of employment are mixed.
- As an overview – this data set has been re-benchmarked. The year-over-year growth has been stable the last few months around 2%. However the employment / population ratio is not reflecting this gain and remains stagnant between 58% and 59% since 2010.
A summary of the employment situation:
- BLS reported: 157K (non-farm) and 168K (non-farm private). Unemployment = 7.9% (up from 7.8%)
- ADP reported: 192K (non-farm private)
- Market expected: 180K to 195K (non-farm), 193K to 215K (non-farm private), 7.7% unemployment
- Econintersect‘s Forecast: 125K (non-farm private) based on economic potential
- The NFIB released a statement (below) saying that small business employment growth was marginally improved in January 2013.
Per the BLS – as their data has been re-benchmarked:
In accordance with annual practice, the establishment survey data released today have been benchmarked to reflect comprehensive counts of payroll jobs. These counts are derived principally from unemployment insurance tax records for March 2012. The benchmark process results in revisions to not seasonally adjusted data from April 2011 forward. Seasonally adjusted data from January 2008 forward are subject to revision. In addition, data for some series prior to 2008, both seasonally adjusted and unadjusted, incorporate minor revisions.
The total nonfarm employment level for March 2012 was revised upward by 422,000 (424,000 on a not seasonally adjusted basis). Table A presents revised total nonfarm employment data on a seasonally adjusted basis for January through December 2012.
The BLS reports seasonally adjusted data. This data is highly manipulated, and Econintersect believes the unadjusted data gives a clearer picture of the jobs situation.
This report is inconsistent this month between the survey and the establishment surveys.
Non-seasonally adjusted non-farm payrolls fell 103,000 – worse than last year’s November / December fall, but rather typical for the 21st century.
Historical Unadjusted Private Non-Farm Jobs Growth Between December and January (Table B-1, data in thousands)
/images/bls non-adjusted change.PNG
As always, the recent past data (last three months) is revised. The change in total nonfarm payroll employment for December was revised from +155,000 to +196,000.
Change in Seasonally Adjusted Non-Farm Payrolls Between Originally Reported (blue bars) and Current Estimates (red bars)
Most of the analysis below uses unadjusted data, and presents an alternative view to the headline data.
The BLS reported U-3 (headline) unemployment was unchanged with the U-6 “all in” unemployment rate (including those working part time who want a full time job) also unchanged at 14.4%.
BLS U-3 Headline Unemployment (red line, left axis), U-6 All In Unemployment (blue line, left axis), and Median Duration of Unemployment (green line, right axis)
Econintersect has an interpretation of employment supply slack using the BLS unadjusted data base, demonstrated by the graph below.
The jobs picture when you view the population as a whole, and with this months improving data seems to be on a gentle improvement trend since the middle of 2011.
- Econintersect uses employment-populations ratios to monitor the jobless situation. Changes in the base data effect our view of the economy.
- In the latest BLS report employment-population ratio is unchanged at 58.6. The employment-population ratio tells you the percent of the population with a job. Each 0.1% increment represents approximately 300,000 jobs. [Note: these are seasonally adjusted numbers – and we are relying on the BLS to get this seasonal adjustment factor correct]. An unchanged ratio would be telling you that jobs growth was around 150,000 – as this is approximately the new entries to the labor market caused by population growth.
The 3 year growth trend is up, and the short term trends are mixed depending on the periods selected – however, it seems the growth trend in 2012 is flat.
Unadjusted Non-Farm Payrolls Year-over-Year Growth
Another way to view employment is to watch the total hours worked which has been been growing at a slower and slower rate since the middle of 2010.
Percent Change Year-over-Year Non-Farm Private Weekly Hours Worked
The bullets below use seasonally adjusted data:
- Average hours worked (table B-2) was unchanged at 34.4 (last month was revised down from 34.5). A rising number indicates an expanding economy if the employment is also rising. This number has been in a narrow channel several months (now at the high side of the channel).
- Government employment contracted 9,000 with the Federal Government down 5,000, state governments up 2,000 and local governments down 6,000.
- The big contributor to employment growth this month was construction (25K), retail trade (33K), and health care (28K).
- Manufacturing expanded 4,000.
- The unemployment rate for people between 20 and 24 (Table A-10) jumped from 13.7% to 14.2%. This number is produced by survey and is very volatile.
- Average hourly earnings (Table B-3) rose 4 cents to $23.78. Wages growth remains in a “less good” trend which could be changing.
Private Employment: Average Hourly Earnings
Economic markers used to benchmark economic growth were ok, and well away from recessionary levels.
The truck employment grew (5k), and growth in this sector shows an expanding economy.
Truck Transport Employment – Year-over-Year Change
Temporary help fell big time 8.1K but remains in the growth range seen during the last 6 months.
Temporary Help Employment – Year-over-Year Change
Econintersect believes the transport sector is a forward indicator. Others look at temporary help as a forward indicator.
Chief economist for the National Federation of Independent Business (NFIB) William C. Dunkelberg released the following statement in advance of this jobs report:
“The first month of the New Year didn’t provide much hope for the months that will follow, at least not on the job creation front, where the trend was positive, but ever-so-slight. For small employers, the average change in employment per firm increased to 0.09 workers, up from 0.03 workers in December. This is the second consecutive month with positive growth, and is sadly the best reading since April 2012. That’s not saying much.
“Overall, 11 percent of surveyed owners (unchanged from December) reported adding employees and nine percent reduced employment (down 4 points). But the vast majority—the remaining 80 percent of owners—made no net change in employment. Translation: stagnation. Forty-three (43) percent of owners surveyed hired or tried to hire in the last three months and 34 percent (79 percent of those trying to hire or hiring) reported few or no qualified applicants for open positions.
“Eighteen (18) percent of all owners reported job openings they could not fill in the current period; this is up 2 points from December, but still historically low. This measure is highly correlated with the unemployment rate, so the NFIB survey anticipates little change in the rate with a little downward pressure.
“As for future job creation, which took a nosedive at the end of last year, plans to hire regained some of the December loss, rising 2 points to a net three percent of owners who plan to increase total employment. It is clear that the fourth quarter in 2012 was weaker—this week’s Commerce Department report confirmed this—and plans have not regained the levels reached in early 2012. Not seasonally adjusted, 12 percent of small employers plan to increase employment at their firm (up 5 points), and eight percent plan reductions (down 3 points). There is not a lot of strength in those numbers, but almost anything is an improvement over December. Not seasonally adjusted, more owners plan to hire than to cut in all Census regions except along the Atlantic coast (Sandy-affected areas) and in all industry groups with the exception of the Wholesale Trades and Construction (a net 0 percent plan to increase jobs, likely a seasonal effect).
“Overall, the NFIB members improved on December levels of hiring plans and job openings measures, but given the abysmal December reading, this isn’t reason for celebration. Washington has done precious little to resolve the uncertainties faced by small-business owners beyond locking in tax rates. The fourth quarter reading for GDP growth is hardly encouraging, but not surprising given the pessimistic sentiment of the small business sector over the same time frame. The reduction in inventory accumulation may not be repeated either, but represents a slowdown in production activity. Even with some recent good news on initial claims, which unfortunately seems to have reversed course again, there isn’t much reason to expect net job gains to be much higher than 150,000 or for the unemployment rate to improve significantly.
“And the administration just announced that they have disbanded the President’s Jobs Council… Another lackluster attempt to spur job growth has once again come to unimpressive end.”
Caveat on the use of BLS Jobs Data
The monthly headline data ends up being significantly revised for months after the initial release – and is subject also to annual revisions. The question remains how seriously can you take the data when first released.
The above graphic (updated through October 2011) is the month-over-month change in employment based on the original headline non-farm employment level and the current stated employment levels at month end. You will note some pretty drastic backward revision for a major economic release the market reacts to in real time.
Econintersect Contributor Jeff Miller has the following description of BLS methodology:
- An initial report of a survey of establishments. Even if the survey sample was perfect (and we all know that it is not) and the response rate was 100% (which it is not) the sampling error alone for a 90% confidence interval is +/- 100K jobs.
- The report is revised to reflect additional responses over the next two months.
- There is an adjustment to account for job creation — much maligned and misunderstood by nearly everyone.
- The final data are benchmarked against the state employment data every year. This usually shows that the overall process was very good, but it led to major downward adjustments at the time of the recession. More recently, the BLS estimates have been too low.
Econintersect has repeatedly pointed out questions about how the seasonal adjustment algorithms and data gathering methodology used by the BLS introduce uncertainty into interpretation of month to month changes in employment.
Econintersect believes the simplistic sampling extrapolation technique of ADP yields a far better picture of the employment situation than the complicated, convoluted Bureau of Labor Statistics (BLS) methodology. However, ADP is using a new methodology beginning with the October 2012 data – and only time will tell if their new approach was as good as their old one.
ADP (blue line) versus BLS (red line) – Monthly Jobs Growth Comparison
Because of the differences in methodology, many pundits ignore the ADP numbers – while waiting for the BLS numbers. Although there can be a low correlation in a particular month, the different methodologies tend to balance out, and the correlations are excellent outside of the data turning points. We are now 16 months past the post recession turning point in employment.
However, there is some discussion that neither the ADP or BLS numbers are correct – as both are derived by a sampling methodology. The answer could be that there is no correct answer in real time – and that it is best to look at the trends. As has been noted, all eventually end up correlating.
The BLS uses seasonal adjusted data for its headline numbers. The seasonally adjusted employment data is produced by an algorithm. The following graph which shows unadjusted job growth – seasonal adjustments spread employment growth over the entire year. Employment does not really grow in the second half of the year and always falls significantly in Januarys.
Non-Seasonally Adjusted Employment – Private Sector
There is the proverbial question on what is minimal jobs growth each month required to allow for new entrants to the market. Depending on mindset, this answer varies. According to Investopdia, the number is between 100,000 and 150,000. The Wall Street Journal is citing 125K. Mark Zandi said 150K. Econintersect is going with Mark Zandi’s number:
- If Econintersect used employment / population ratios to determine the number, the exact number seems to be between 140,000 and 160,000. The graph below uses the historical employment-population ratios to show jobs growth per month if the population was 300 million.
Historical Monthly Jobs Growth Comparison if Population was 300 Million
- If Econintersect uses employment – population ratios, the correct number would be the number where this ratio improved. Using the graph below, the ratio began to improve starting a little after mid-year. This corresponds to the period where the 12 month rolling average of job gains hit 150,000.
Employment to Population Ratio
Note: The ratio could be fine tuned by adjusting to the ratio of employment to working age population rather than the total population. However, this would not change the big picture that an increase of somewhere around 150,000 (+/-) is needed for the growing population numbers. We have estimated 140k – 160k. The number might possibly be within the range 125k – 175k. Econintersect cannot find reason to support the estimates below 125k.
The question of how changing demographics impact the employment numbers is at the margins of analysis. Econintersect will publish more on this fine tuning going forward, both in-house research and the work of others.
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