The WSJ’s Marketbeat reported yesterday that the latest analysis to join our skepticism on NFP is none other than Goldman Sachs:
"Second-guessing government statistics is gaining more credence as time goes by. Greg Ip over at Washington Wire has this post,
detailing how economists at Goldman Sachs believe the Bureau of Labor
Statistics might be overestimating the number of jobs created in new
firms, thus making employment growth look stronger than it is. It’s a
point bloggers such as Barry Ritholtz have made as well."
Let’s take an even closer look at the NFP details then we did on Friday.
The initial read of the April Employment Report was rather punk — Payroll growth at a 2-year low, Unemployment down, but sarting to tick higher — but the devil is always in the details. This report gave Lucifer plenty to play with.
We already mentioned the BLS Net Business Birth/Death Model wholly created a record breaking 317,000 jobs — the largest amount of monthly jobs ever created from the model — out of thin air. There simply is no justification for it. But we are not alone in that criticism:
• John Williams Shadow Stats has an explanation for the unreasonable jump in B/D jobs. “Based
on prior-period revisions, skewed seasonal factors and an enhanced bias
factor, the April data appear to have been massaged so as to avoid
showing a monthly payroll contraction. Reversing the pattern of most
recent months, the Bureau of Labor Statistics (BLS) reported major
downward (instead of upward) revisions to previously published data,
and seasonal factors became skewed again. Where the monthly
year-to-year changes in both the seasonally-adjusted and unadjusted
series should be the same, applying the base unadjusted growth rates to
the adjusted series would have reduced the monthly jobs gain from
88,000 to just 32,000.”
• Goldman Sach’s Jan Hatzius writes: Nonfarm Payrolls: Weaker than Reported?
The Labor Department’s ”birth/death model”—which imputes net job
creation by new firms in the monthly nonfarm payroll figures—may
currently be causing a significant overstatement of employment growth.
(1) Conceptually, the danger of overstatement is greatest when the
economy is slowing, as it has in recent quarters. (2) On a seasonally
adjusted basis, employment birth/death adjustments have been unusually
large recently, perhaps because the model “concluded” from the large
upward 2006 benchmark revision that new firms were being created at a
faster rate. (3) The quarterly Census of Employment and Wages (QCEW)
suggests that true employment growth had already started to trail the
official estimates as of Q3 2006. (4) The household survey of
employment has weakened considerably in recent months.
• Q1 GDP growth was 1.3% — a fraction of 2006 GDP — compensation declined 1.5% in Q1; If Housing is in such a horrid slump, and Manfucturing has been slowing, why on Earth does BLS think small businesses created the most jobs ever for a single month in April? How did an unfathomable 49,000 construction jobs get created (via B/D), when the Net Construction jobs actually measured by BLS — not merely hypothesized — fell 11,000?
• Merrill’s David Rosenberg:
“A point to note: fulltime jobs, the key generator of personal income
growth, plunged by 687,000 in April. That was the largest slide since
the economy was knee-deep in recession in August 2001. Such a decline
has only occurred three times in the history of the Household Survey
going back to 1968.” Mr. Rosenberg notes that “the employment-to-population ratio sagged to
63% from 63.3%….The last time the employment/population ratio fell
that much in one month was in October 2002, when the Fed was consumed
with deflation fear and was on the precipice of cutting the funds rate
two more times.”
• A friend emails me this: "For years certain permabulls screamed that the Establishment Survey (CES) understates job growth and the Household Survey (CPS) is a more accurate depiction of the economy. For April the Household Survey shows a job LOSS of 468k! For 2007 the Household Survey has a net LOSS of 140k jobs. The Household employment adjusted to Payroll methodology (excludes the self-employed and counts each job a multiple-job holder has) fell by 70K."
• BLS continues to understate the unemployment rate, as it has been doing for most of the past 6 years, by reducing the ‘pool of available workers’. BLS reduced the labor force by 392,000 in April. This kept the Unemployment Rate from jumping higher than 4.5%. The ‘participation rate’ declined to 66% from 66.3%, which is an unusually large monthly decline. That’s 0.3% times 143 million or so workers — instead of rasisng the unemployment rate, we lower the labor participation rate by 429,000 workers.
• BLS continues to overstate actual employment — From BLS: “Household survey. The sample is selected to reflect the entire civilian noninstitutional population. Based on responses to a series of questions on work and job search activities, each person 16 years and over in a sample household is classified as employed, unemployed, or not in the labor force. People are classified as employed if they did any work at all as paid employees during the reference week; worked in their own business, profession, or on their own farm; or worked without pay at least 15 hours in a family business or farm. People are also counted as employed if they were temporarily absent from their jobs because of illness, bad weather, vacation, labor-management disputes, or personal reasons.”
In other words, if you “Worked without pay,” the BLS Household survey considers you gainfully employed. Beyond absurd . . .
• Casey Weldon notes, “Over the last few years, a month-month decline in Self-Employment has become a very RARE occurrence. The only other month-month decline posted in the last YEAR was in Dec-06. The number of Self-Employed in the US contracted by (-) 24,000 in April.”