In Barron’s this week, Alan Abelson laces into BLS on the NFP data:
"We’re talking instead about something much more important, namely, who’ll get the Pulitzer Prize for Fiction. The winner hands down, we
fearlessly forecast, will be that brilliant narrative confected by, of
all people, the Bureau of Labor Statistics, and published just last
Friday under the deceptively bland title "The Employment Situation:
April 2008." Although we’re loath to deprive you of even a modicum of
the thrill of devouring this marvelous work of magic realism by
revealing too much of its contents, rest assured it’s carefully
designed to leave you with a comfy feeling in these rather trying times.
No doubt you’ve already
gleaned the beaming news that instead of the 75,000-80,000 or even
greater job losses and higher unemployment rate that the soothsayers
were prognosticating, payrolls last month were trimmed by a much more
modest 20,000, and the unemployment rate dipped to 5%, from 5.1%.
Hallelujah! It’s such a happy contrast to those nasty expectations and
to the 81,000 jobs that vanished in March.
What makes the report all
the more extraordinary is that it comes in the face of otherwise dismal
dispatches from the employment front. Layoffs last month, according to
Challenger Gray & Christmas, the placement firm, tallied 90,015, a
hefty 68% greater than in March. New claims for unemployment insurance
in the last full week in April rose to 380,000, from 345,000 the week
before, while continuing claims topped the three million mark. Monster,
the online want-ad outfit, reported a 6% drop in its April index
compared with the same month a year ago, and the Conference Board’s
help-wanted index sagged to a new low while its measure of employment
opportunities showed, not surprisingly, jobs are ever-harder to come by.
The BLS report, then, was
like a burst of sunshine dispelling the gloom. So we take this occasion
to tip our hat to the bureau’s artistry in being able to fashion a
comparatively heartening picture of the job market out of some very
unpromising raw material. The populace, as recent soundings make clear,
is plenty uneasy and disgruntled about the stumbling economy, feeling
the pinch and worried about a paycheck; so anything that can provide a
lift to sagging spirits is more than welcome.
Actually, the praise really
belongs to the unknown (at least to us) and certainly unsung
numbers-bender who crafted the so-called birth/death adjustment,
supposedly created to capture the additional jobs of firms too new to
be captured by the survey. As it has demonstrated time and again, it’s
much more a product of the imagination than of dull data, as, of
course, any worthwhile work of fiction is.
We have on occasion pointed
out the contribution the birth/death adjustment has made to the payroll
total, but we have trouble remembering when the additional slots it
conjured up were anywhere near as massive as they were in the April
reckoning, when it "generated" 267,000 jobs. Put another way, ex the
adjustment, last month’s job loss would have ballooned to 287,000. Bit
of a difference, eh?
Just one illustration points
up the, shall we say, peculiarity of what the BLS adjustment has
wrought. According to the birth/death model, 8,000 jobs were added in
April — are you sitting down? — in the financial sector. Which, we
assume, will come as a stunning surprise to the gosh knows how many
poor souls who have been laid off by the banks, the brokerage houses
and the rest of the not-very-robust financial fraternity. Must be
something really wrong with our vision, moreover, since new firms in
that sector appear to be conspicuous by their absence.
As Philippa Dunne and Doug
Henwood, the very bright bulbs who run The Liscio Report, point out —
though they usually view the birth/death model more kindly than we do
— among the stranger additions made via its agency in the April report
was the 45,000 to construction jobs. (In case you’ve been vacationing
on the moon, construction is not exactly booming.)
They also suggest that the
83,000 new slots supposedly created in the leisure and hospitality
field is definitely suspect. "With vacation plans at near-record lows
and restaurants reporting reduced traffic," they feel many of these
supposed job gains could simply disappear come the next benchmark
After reviewing the defects
in the household version of last month’s employment trends, Philippa
and Doug warn, "given all its internal blemishes," it would be wrong to
conclude from the April report that the economy and the job market are
stabilizing. And they caution, "An economy providing lots of part-time
jobs to the young and few full-time jobs to the prime-aged" is an
economy that could have a tough time "sustaining life."
That’s longer than I usually like to excerpt — and we’ve hit on many of the same themes — but it is simply too perfect not to reproduce all of the relevant sections.
Work of Art
Barron’s May 5, 2008
UP AND DOWN WALL STREET
Alan Abelson is a National Treasure.
How about a Nobel Prize in Economics to Bush, Peace for Cheney, and Mathematics for Rove – for his “theory” of turning demographic slicing and dicing of the fears, prejudices, and hatreds of the American electorate into a permanent majority. Real world applications of imaginary numbers…
Is there any truth to the rumor that to appease the Christian Right the Bush administration is pushing the BLS to adopt a Birth/Death/Born Again model?
The company I own was recently contacted by US Mail and phone by the Dept of Labor to participate in their monthly data gathering to generate this “report”. During the call, I pointed out that all the data they were requesting was already being supplied to the IRS on a monthly/quarterly basis. They said that it takes them 2 years to get data from the IRS so they needed to get it directly from us. I then asked the question they didn’t want to hear: Is my participation required by law? The answer for the state I live in is no. So I politely declined to participate, telling them that I thought their reports were factually challenged and their methods were suspect. What method in particular they asked? The birth-death adjustment.
Over the next 2 weeks, I got kicked up the supervisor chain in Dept of Labor with repeated phone calls begging for my participation. They even offered to make the data gathering less onerous by letting me report only some of the requested data. I kept saying that as soon as one of them could explain to me how the B/D adjustment worked, I was in.
Needless to say, I’m still not in.
Emplyment figures are being dealt with like any other opponent–first, deny employment figures are bad; second, create own reality; and third, will be an attempt to intimidate the statistic. The problem a statistic doesn’t respond like an insurgent.
I suspect the job gains in construction are where out of 100 laid-off workers 10 started new companies, but they are no 83 people each like the old days but one guy and his buddies on the weekend and under the table. What the B/D adjustment is failing to capture is the shape of an industry in a downturn. It can probably be fixed for that, but of course the BLS doesn’t want to since that would fly in the face of the Bush decree to create reality.
So they collect this crap by randomly calling companies, when the actual numbers are already reported to the IRS?
Good grief, what tripe. If only there were a way to collect data and instantly transmit it to other people….
With government stats, such as the NFP, having direct impact on the pricing of securities (i.e. Nonfarm Payroll Futures on the CME, TIPS, etc…), don’t investors now have the impetus to demand cleaner numbers?
I always wondered why workers that rely on the government to tell them how much their benefits will be inflation adjusted don’t demand it be reported in a logical manner…
I wonder what the BLS employees thought of their COLA increase. Are these people on a different pay scale?
The beginning of each month we see the same nauseating patterm:
1) Hey,last month the numbers weren’t so bad.
2) Look, the Mahket is going up!
3) The economy has turned!
This month they must really be desperate. Bush just came out to say how reliable our reported economic numbers are.
Reality is always putting a crimp in this administration’s style. You’ve got to hand it to them, though. They can kick that can down the road with skill.
“So they collect this crap by randomly calling companies, when the actual numbers are already reported to the IRS?”
Actually Donna, in both their glossy mailing and their phone calls, they go to pains to explain that the sampling is non-random. They are trying to get data from certain numbers of certain sized companies per sector per region – according to a statistically driven sampling plan.
I’m not even going to speculate whether or not random sampling wouldn’t actually be better than their defined sampling plans….
So all of this begs the question of when they have to come clean. When does the BLS publish the actual numbers instead of the monthly numbers, which are a combination of sampled data + the B/D model? The first Friday of the month is probably the single biggest regular news day of the month for the markets since the NFP data is so frequently a major surprise. But I’ve never seen any such publicity or reaction for a report that would true up the data. Or is it like the inflation numbers, which they never true up?
Donna writes – “So they collect this crap by randomly calling companies, when the actual numbers are already reported to the IRS?”
The Banks know weekly what the balance is. Weekly. Lazy programmers if not. That info is privileged and valuable.
Except for the drug trafficers and other underground economies. That is a bit harder to deduce I recon .
when is someone, of similiar repute, going to sack up and award a like prize for ‘Fiction’ to the FedRes?
as an aside, I’ve appreciated Alan Abelson for many moon..
If you are going to not consider the birth/death adjustment, then its only fair to not count the seasonal adjustment. If you take that out, then the report shows a large gain of jobs. Why does noone here want to talk about that??
I mean if every number that does not support your thesis is discounted and every one that does is embraced with open arms then what type of rational argument can anyone have with Barry or his supporters on the blog.
BR: What does the seasonal adjustment — a simple mathematical adjustment designed to show an appropriate annualized number from a single months data — have to do with the B/D model, something that hypothesizes job creation, rather than actually measuring it?
And the farce wouldn’t be complete without mentioning revisions!
In the May 2nd report (for April), the March decline grew another 8k, for 88k today (now standing at 137,838 thousand jobs, preliminary).
If this revision hadn’t been made, the decline for April would have looked larger by almost a third.
If my numbers are correct, another 18,000 jobs were lopped off February as well, as the BLS arrived at its final “are you sure??” figure for that month.
Had enough? Wait, there’s more: in the previous report (April 4, for March 2008), when BLS announced an 80k decline for March, they also revised January and February down by a combined total of 85,000 jobs. Oops!
That the market reacts significantly to the latest headline number for this data series is a sick joke.
There are plenty of clowns to be found in the permabull camp (e.g. Kudlow). But c’mon, Abelson? He rivals Jim Cramer as one of the most overrated, insufferable pundits going (and that’s saying something). Grab one of his pieces from early 2003, e.g. 4/21/2003, just as the market was beginning to entire its huge rally. Sure enough, Abelson writes, “In sum, don’t get sucked into this hype-fed, hope-fed rally in tech stocks. All you’ll end up buying is grief.” When he wrote that the Nasdaq was at 1,424. Since that time, has he once — JUST ONCE — acknowledged how little help he has been to readers by never wavering from his tiresome, “oh golly gee, far be it from us to accuse anyone of blah blah blah” shtick? Never. David Swenson was quoted in the NYT as saying that “there is nothing Jim Cramer says that helps people make better decisions.” We should add people like Stein, Kudlow and Abelson to that list and stop showing them respect and admiration they clearly do not deserve.
Is the sentence in the sixth paragraph “Put another way, ex the adjustment, last month’s job loss would have ballooned to 287,000” a true statement? I thought (per Barry) “the B/D is not a one for one additor to the NFP data.” It seems like the author just subtracted 267,000 (the B/D adjustment) from -20,000 (the reported figure) to arrive at his 287,000 lost jobs figure.
So no one outside BLS knows how the B/D is calculated?
Fear the Data – Thanks for showing how the BLS operates.
Cooking the books is a real indication of how this government works. It is also true that a government/country/company that lies to themselves and their customers will eventually meet their demise. This is sad, scary and so indicative of how this country operates.
The lies just keep getting bigger and bigger until there is no sound information left to operate on. Sounds sorta like the basis for invasion of Iraq, or how about Enron. Maybe even Katrina.
Rule of law means and property rights means nothing when the information is so cooked no one knows what is going on. How do you base a corrective action plan when all you have is false information? Answer is you don’t, you just thrash around and suggest really ideas like cutting the gas tax. Pandering at its’ finest.
Stand by to stand by.
“all the data they were requesting was already being supplied to the IRS on a monthly/quarterly basis. They said that it takes them 2 years to get data from the IRS”
It takes them 2 years because they are not really anxious to get it on a timely basis. And of course, their political masters will have none of that ugly stuff called clean data; they prefer “cleaned” data.
One thing the powers that be ought to remember: when people will decide that nothing they say can be trusted, the brown stuff will hit the aerodynamic tunnel with tsunami force for said powers.
When the written word, the TV ad, the speeches, and even the laws they promulgate will be considered grade-AAA bullshit, with no chance of redemption, what will the politicians have left?
“The lies just keep getting bigger and bigger until there is no sound information left to operate on.”
This would not happen if the media would do the job they’re supposed to do, instead of parroting the officialdom doublespeak.
But hey! They’re not in the news business anymore, but in the business of news. Cheaper to produce with much more profits to collect. What’s not to like?
Only a fool places any credence in any government published statistics.