Our previous look at this Absurdly Large BLS Revision simply wasn’t satisfying; So I had to spend some additional time reviewing this data .
Here is the official BLS statement:
"Each year, the Current Employment Statistics (CES) survey data are
benchmarked to comprehensive counts of employment for the month of March derived
from state unemployment insurance (UI) tax records that nearly all employers are
required to file. For national CES series, the annual benchmark revisions over
the last 10 years have averaged plus or minus two-tenths of one percent. The
preliminary estimate of the benchmark revision for March 2006 is +810,000 (0.6
BLS currently is researching possible sources for this larger-than-normal
expected benchmark revision. On initial review, the difference between the CES
sample-based estimates and the UI employment counts does not appear to be
concentrated in any one industry or geographic region." –BLS Benchmarking Revision
"Researching possible sources" — let’s call that the bureaucratic understatement of the year. The BLS has a benchmark restatement that is 300% of its 10 year average, and they announce: "We are looking into this."
I am waiting to speak to a statistician at BLS (they appear to be closed on Columbus Day), but if we were to take this data at face value, than the economy is MUCH STRONGER than previously data would have us believe. From March 2005 through March 2006 NFP growth averaged 236,000 a month versus the past 2Qs of ~119,000.
If the Fed is data driven, and if they consider this BLS Benchmarking reliable, then the issue at hand is this: This would make the Goldilocks scenario far less likely, and it
would undercut the entire basis for the recent Bond market rally. Given this newfound economic strength, they should be back on their tightening campaign sometime soon.
Bill King is even blunter:
"For months the Fed has professed, some say groveled, that it is ‘data drive’. We, as you all know, have been questioning the veracity of government data for over a decade. We now know that some very important data that has been driving the Fed is wrong. The Fed has transacted policy off faulty data. Ergo, Bomber Ben’s decision to pause could be based on faulty data. And interest rates and US productivity could be based on erroneous data. Therefore investor and trading decisions for much of the past year and one half are based partially on faulty US economic data."
I am curious as to how BLS missed nearly a million jobs; Did the businesses who did all this hiring forget to report back to the CES ?
John Williams, of Shadowstats.com, reports that
employment report showed severe deterioration, despite a number of reporting
gimmicks… This is despite the comparative annual boosts starting
to show up in data from the effects of last year’s terrible hurricane season.
The heavily touted annual gain in September retail stores sales is a prime
example of such an effect."
I suspect that this revision may accidentally reveal a few economic and market truths:
1) Is the Fed really data-driven, or do they merely say that because it is more palatable than admitting this is all a seat of the pants exercise?
2) Has the equity market rally truly been based on a Goldilocks scenario, or has it been correctly anticipating a bold and robust economy?
3) Was the bond market anticipating a slow down? Given all this hiring and economic strength, we have to wonder how real their fears and concerns actually are.
Something strange is afoot at the Circle K: Either the economy is much stronger than we previously believed, ending the Goldilocks scenario — or the data driven Fed is reliant on what we now know to be bad data.
Neither case presents an attractive outcome.