Last week, I went into the details of the NFP report (See Tearing Apart January 2012 NFP data). There were 10 positive bullet points versus 5 negatives — and even those negatives were the same old sore spots (high teen and minority unemployment, persistent long term joblessness, etc.) that have been plaguing the labor market for some time now.
For the past decade, I have been very diligently tearing apart the monthly jobs data with a statistician’s eye: I have discussed the importance of the overall trend versus any one point in time; I have emphasized how far off the Birth Death adjustment becomes at the end of each economic cycle (not the beginning); we reconciled the differences between Household and Establishment surveys; urged the media to report both Unemployment (U3) and Underemployment (U6), and lastly, noted that flat wages are even worse than reported thanks to the Fed/BLS tendency towards focusing on Inflation ex inflation.
I mention these bonafides because I am no sycophant when it comes to BLS data. I have long urged a healthy skepticism, and have tried to look beneath the headlines (perhaps if there is interest, I may post a guide to various ways to read BLS employment data).
However, after Friday’s solid NFP release, some unusual — and to be blunt, quite silly — commentary was about the intertubes. Quite frankly, it embarrassed its authors, whom I would categorize into three distinct cliques: The PermaBears, the Political Knaves, and the Consistently Wrong (some people belong in more than one category).
ZeroHedge has been a terrific site when it comes to CDOs, HFT and other challenging aspects of financial complexities. That’s what makes it so difficult to understand why they completely shit the bed with the BLS census adjustment (Record 1.2 Million People Fall Out Of Labor Force In One Month, Labor Force Participation Rate Tumbles To Fresh 30 Year Low).
Good analyst, bad analysis.
Understand what this Census adjustment actually is: BLS takes the decennial census, and adjusts its estimates for total population, work force, and employed, and does so for a variety of demographic factors. No, it is not that the non-institutional population suddenly rose by 1.7 million month-over-month, and therefore the labor force suddenly lost a million people. Rather, this reflects a “frame of reference” revision incorporating the latest census data.
Don’t take my work for it, here is what the conservative American Spectator said:
“I don’t want to overstate the significance of [Zero Hedge’s] oversight, which conservative voices around the media and the web are also making, namely the idea that the participation rate dropped 0.3 percent and the labor force dropped more than 1.2 million in the past month. Those things are simply not true no matter how loudly people scream “conspiracy” and “propaganda.” (Having been trading financial markets for about 25 years, I’ve heard these same accusations about economic data being manipulated to help the incumbent president — whether Democrat or Republican — so many times, they just bore me now.)”
This error was immediately picked and amplified by CNBC’s Rick Santelli, who was one of the Tea Party’s founding fathers. Santelli has been dead wrong about NFP the past 6 months (or longer). From the floor of the Chicago Exchange, he has underestimated Employment data month after month without correction or remorse. I haven’t teased apart everyone of his calls, but it seems that he has been consistently on the wrong side of the data since the late Spring. Perhaps The Daily Show might like to take a look at his prognostication skills.
File Santelli under the category Political Knave, along with James Pethokoukis. Jimmy P was once a good economics reporter, but he has allowed his political bias to consume him. It is a shame, because he has a good mind and a head for numbers — but since his joining the Kudlow brigade of hard right touts, his work like Why the official 8.3 percent unemployment rate is a phony number—and what it means for Obama’s reelection is not worth the effort to separate the valuable analysis from the politcial hackery.
Lastly, there are those who have been simply wrong. I have to throw Charles Biderman under the bus here. He has been so consistently wrong over the past 4 years it has been rather astonishing. He utterly missed the signs of the crisis in 2007-08, denied the recession deep into it, and then missed the turn in 2009-10. (If there is interest, I might post his major calls).
Biderman actually complained that — WTF!?! — all of the gains were due to seasonal adjustments in January. This has to be one of the single most clueless economic statements I have ever read. Of course there are massive seasonal adjustments in January! There is a huge hiring surge in November and December — primarily retail sales and shipping — which is unwound in the New Year. This occurs annually, mostly due to a little-known holiday you might have heard of called Christmas.
Ignore the economic foolishness of the biased political hacks and perma-bears. If you want an excuse to be cautious on the markets, then look at the mixed earnings near a cyclical peak, the overbought condition of indices, and the headaches in Europe. There are always plenty of reasons to be concerned and worried — but the January NonFarm payrolls isn’t one of them.
Tearing Apart January 2012 NFP data (February 3rd, 2012)