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)

No Rick Santelli and Zero Hedge, One Million People Did Not Drop Out of the Labor Force Last Month (February 3rd, 2012)

Category: Data Analysis, Employment, Really, really bad calls

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

44 Responses to “A Few Thoughts on the Employment Situation”

  1. [...] Barry goes in on Jobs number skeptics, kicks perma-bears down a flight of stairs.  (TBP) [...]

  2. Mike in Nola says:

    Thanks for the elucidation. I’m more or less a permabear but at least try to keep it rational.

    I read a good deal of what you described and was thoroughly confused on what to believe. I read ZH a lot, but look on it as a scandal sheet containing a few good articles that have to be ferreted out. I also subscribed to Biderman’s RSS feed over the weekend; I’ll continue to read him, but at least have a better idea of where he’s coming from.

    Santelli: what can you say? At least he’s entertaining. I suppose that’s one of his primary functions.

  3. Market Panic says:

    “People who claim “there was an improvement” are having a hidden agenda or simply lying. Nobody can make such claims (not even BLS economists) because these estimates and assumptions are subject to large revisions in the following months.”

  4. BobCarver says:

    John Mauldin reported that withholding taxes fell. That’s not consistent with a quarter of a million new jobs. And, Paul Craig Roberts had some analysis, too, that casts serious doubt on the numbers:


    BR: Thats the entire point — January Jobs are not “Are Statistical Artifacts” — regardless of the oh so very objective “Institute for Political Economy” claims.

  5. Old Rob says:

    SOMEONE is missing the point. Since we all suffer from confirmation bias, we all have our axes to grind. BUT, the loss of 1.17E6 individuals out of the workforce is not insignificance. One may have positive or negative expectations of the economic talking heads, but the really objective data appears to be ‘worked’ in order to give the appropriate spin. There is a secular downward trend in people working due to the Boomers leaving the workforce; this can’t be changed. The best anyone can do it to honestly analyze all data before putting out the political 8.3%. Maybe it’s better, but my bias tells me it isn’t.

    Endpoint: It is doubtful anyone will arrive at the correct employment picture with BLS or any ‘popular’ data.

  6. Moss says:

    The political hacks are rather astonishing in that all they care about is discrediting Obama and the Democrats. It is educational to witness them putting so much effort into trying to get control of the very government apparatus they claim is the root of all evils.

  7. Petey Wheatstraw says:

    Sometimes, the good news is that even though you’re mangled beyond comprehension, you’re not dead. Sometimes, the bad news is that even though you’re mangled beyond comprehension, you’re not dead.

    Spin it as they might, MFP numbers weren’t as bad as they have been, recently. OTOH, less bad isn’t exactly good. OTO,O,H, I see no reason to place any trust in a measurement system that relies on shifting definitions and sliding variables which are constantly massaged for political purposes.

    As usual, one has to determine the ‘why’ of a particular event in order to make sense of it. Why were payrolls up? Well, it certainly wasn’t because we’ve repaired the faults in our economic foundation. Until we do that, I believe that any ‘good’ news will be short lived.

  8. Petey Wheatstraw says:

    NFP. MFP is another thing, entirely.

  9. krice2001 says:

    I guess it’s also interesting to me that the GOP emphatically states that government cannot create jobs but then watch the GOP candidates preach how they’ll use the government to create jobs.

  10. yuvalw says:

    Hi BR,

    Obviously the NFP report is more complicated than just the headline.
    But I know that thing: my wife graduated with a M.A degree a year ago, and many from her classmates haven’t found a decent job yet (I.e job that matches their skills). Some just gave up and continued to phd, and some are just taking temporary jobs and still looking (they graduated from a well-known private school at MA).
    I’m sure that there are many like them all over the country.
    So while the unemployment has really fallen, was it with “quality” jobs or jobs that you don’t need any education?

  11. Northeaster says:

    As Bruce Krasting and Karl Denninger pointed out:

    That’s LESS people paying taxes in a growing population.

    Of course, if you work in finance/investments, such mundane data is irrelevant.

  12. MightyMo says:

    yes, there is interest a guide to various ways to read BLS employment data

  13. streeteye says:

    You’re way too kind, there’s no analysis, it’s all disinformation.

    I’m all for healthy skepticism, but ZeroHedge goes quite a bit further, peddling and inventing insane conspiracy theories. There are some places that are tabloid and linkbait in the interest of getting page views, but ZeroHedge jumps the shark and goes way over the line. The only question is whether they do it for a supermarket tabloid ‘Alien controls White House’ business model, or are caught up in a KGB disinformation nexus. (Also consistent with a tin-foil hat mental disorder, but I’ll discount that since he seems pretty calculated)

  14. Robespierre says:


    “labor force dropped more than 1.2 million in the past month”

    While I agree that labor force participation did not drop like that in the past month. Isn’t it true that when you see labor participation YoY you reach the conclusion that the “trend” is not going in the right direction?

  15. mathman says:

    From Financial Armegeddon:
    (explaining his take on employment and quoting Mauldin’s Thoughts from the Frontline with graph and others)

    Here’s a quick, funny read on “campaign endorsements” and politispeak:

  16. [...] Link to Mr. Ritholz well articulated argument: [...]

  17. DeDude says:

    Those who base their opinion on data and facts will look at this data and realize that employment is improving although slowly and with pockets of severe problems (young, uneducated and long-term numbers still very high although improving). Calculated risk does a nice break down for those who are interested in data-based opinions. The improvement in unemployment is not a surprise because the changes in weekly fillings have pointed in that direction for some time. I don’t think anybody have suggested that its all clear, fine and dandy. But in the fact based world the trend has clearly turned in a positive direction.

    For those who base their opinions on feelings they pull from some bodily cavity (because they are convinced that is a more reliable than government provided numbers), it is surprising that they even engage in a debate about government numbers. These numbers have their well-described “issues” but it is pretty clear that those issues are not explaining away (or reversing) the slow steady positive trend of the past 6-8 months.

  18. Spruce-gum says:

    As statistics go, Gallup has produced some interesting numbers from the weekly 30,000 survey which I have trouble reconciling with BLS ongoing reports (i.e. adjustments to decennial) I would expect current sampling to trend with the BLS reporting -comments?


    BR: Underemployment is U6 (Unemployment is U3)

    U6 remains stubbornly high . . .

  19. kenny powers says:

    John Hussman has some interesting things to say about the number in his latest weekly market comment. It might not be all it’s cracked up to be. I don’t believe he has been shitting the bed. Take a look.

  20. Pantmaker says:

    We will all know the reality of the employment situation (vs NFP, BLS poppycock etc.) and it’s effects on the markets and broader economy in the fullness of time. I think Hussman sums up the current situation as well as anyone.

    “To begin, it’s useful to understand how the Bureau of Labor Statistics calculated the 243,000 increase in employment that it reported for January. Total non-farm employment in the U.S., before seasonal adjustments, fell by 2,689,000 jobs in January. However, because it’s typical for the economy to lose a large number of jobs after the holidays, largely in retail trade, construction, and manufacturing, the BLS estimated that the “normal” seasonal decline in employment should have been 2,932,000 jobs in January. The difference between the two numbers, of course, was 243,000 jobs, which was reported as an increase in employment. The fact that the size of the seasonal adjustment was more than 12 times the number of reported jobs, and more than 30 times the “beat” in economists’ expectations, should provoke at least some hesitation in taking the number at face value.”

  21. AHodge says:

    ive been making a little money sometimes for a decade or more
    on many not understanding the BLS rebases Household (not payroll) jobs every january
    but DOES NOT REVISE the history
    it used to be they didnt even warn you
    now its a real intelligence test if you still get it wrong
    back in the day Rs claimed to like Household jobs data cause it looked better than payroll under their regime
    and would always get this wrong
    there are hundreds of ancient JOBs UP MORE THAN A MILLION!!eadlines floating in some corner of the net

  22. taketheredpill says:

    Agree that the 1.2 MM drop-pout is not correct, but….

    The trend in participation rate is clear (down).

    The disconnect between participation rate and unemployment rate is also clear. When unemployment rate peaks and heads lower, participation rate troughs and heads higher. But not this cycle.

    Likewise wages and unemployment. When unemployment rate peaks and heads lower, year over year wages troughs and heads higher. But not this cycle.

    Employment typically turns around about 12 months after stock market. So Participation should have turned around early in 2010. But not this cycle.

    The pop in the stocks looks like a tech break but fundamentally I can’t see this as “the big sign” that US economy has bottomed, at least not until short end of Treasury market pukes.

    On Friday the odds of a Fed hike rose from 42% to 44%.


  23. mark says:

    @Pantmaker, inter alia

    BR has pointed previously that the M-O-M NFP has a lot of inherent error in it because it is the difference of two very large numbers each of which has it’s own large error bars. But (and excuse me for shouting) THAT’S TRUE EACH AND EVERY MONTH. In January of course this is exaggerated but again (and again excuse me for shouting) THAT IS TRUE EACH AND EVERY JANUARY.

    The only criticism I would make of BR’s analysis is that he left out what I see as the biggest negative which is the continuing poor performance of the participation rate and employment to population ratio. I’ve take to largely ignoring U3 and U6 and focusing on the p-r and e-to-p-r since they eliminate some of the problems inherent in how U3 and U6 are calculated (and I’m aware of the baby boomer retirement effect – the 25 to 55 demographic still does not look as though it has definitively moved out of its downtrend; it will take a few more months to say that for sure or not).

  24. [...] A Few Thoughts on the Employment Situation - Barry Ritholtz …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). [...]

  25. [...] thoughts on the improving employment situation.  (Big Picture, Capital [...]

  26. Bob A says:

    file Santelli under the category… blubbering tea party idiot

  27. HEHEHE says:

    RE Zero Hedge,

    That NY Mag piece was a complete hit-job put out by Wasserstein. He had a direct interest in debasing popularity in any blog that routinely scooped his ALM and the other media outlets to which Brucie was still connected. ZH hits more than they miss and bring up issues that MSM won’t touch – until months later .

    I still disagree re your employment numbers evaluation. I anticipate there’ll be a sizable revision in the rate upward next month when they of course can bury it under a bad headline number. Election year monkey business at its finest.

  28. PDS says:

    BR….your mantra in the past has never been to put to much into one data point….so why are you contradicting yourself with this single employment report….the overall fact remains that this economy is underperforming past recovery/expansion cycles and the reasons are systemic in nature….re employment report….i don’t know if this indicates reality and start of trend or not…no one does….my guess is that the this recovery has given us many false starts (eg at the beginning of 2011 the majority of economists were looking for strong GDP growth in the 4% range…despite a strong start to year…they had a big miss…GDP grew at 1.7% for year)….and this # is just another one

  29. Sunny129 says:

    No point wasting energy and time.

    Let’s just wait for the (TREND) numbers coming out in Feb and March!

  30. sangfroid says:

    @DeDude “Those who base their opinion on data and facts will look at this data and realize that employment is improving although slowly and with pockets of severe problems (young, uneducated and long-term numbers still very high although improving). Calculated risk does a nice break down for those who are interested in data-based opinions. ”

    That is assuming the data you get and use is impartial to begin with, which I have a healthy scepticism of anything that’s labeled as gov’t released. I don’t know why any one would still read Calculated Risk, that blog might have been useful a few years ago but it’s basically rehashing gov’t data and have no real predictive value.

  31. OneBigAssMistakeAmerica says:

    Bear bear bear… “U6 remains stubbornly high . . .” you are like the stockBroker quoting GROSS returns not NET to the naive client… Yea let’s continue to have the media (and B-ritholtholtz) “fool” the lazy, stupid American people with this unreal data about our country… How SAD !

  32. DeDude says:


    It’s between government data and what? – if you want to use a data based approach to create your opinion. Except for pulling things out of bodily cavities where would you get data to build an opinion? I am aware of all the problems with the methods that are used to collect this data (this blog has previously pointed to a lot of them). The nice thing is that the government actually (in contrast to most “think” tanks) release all of their methods and details of data collected for unemployment. So if you don’t agree with how they handle this or that problem you can redo it. The thing about trends is that they pretty much survive even if you change this or that way of doing things. So yes you may even find a way to twist assumptions such that we lost jobs (according to your personal way of calculating and using your personal assumptions within the models) but the trend will almost certainly be towards “improvement” (i.e. less loss) in employment. The suggestion that the government simply makes up numbers is way to “wild-eyed-conspiracy-theorist” for me – if that is what you are hinting at. A conspiracy involving more than two people is always eventually revealed; and so far there has not been any revelation of cases where numbers were completely made up.

  33. BubbRubb says:

    The fact is, the economy is recovering in most parts of the country. Sure there are some places that are having problems. And by no means are we back to some grand time where everyone has more money than they know what to do with.

    People are still suffering, there are still more people unemployed than there are open jobs. The ratio in November was 4:1. That’s way too high.

    But, things are picking back up. From 2008-2009 the house was almost burned to the ground. 2010 was a year the house smoldered. And in 2011, the house started to get see some repairs only to be attacked by a band of “defaulting” arsonists in summer. By late 2011 and into early 2012 the house has finally started seeing some much needed repairs.

    I see the recovery continuing without delay. Here’s what could hold it back: 1.) Greek Default/Euro Banking Crisis 2.) Iran/Oil Disaster sending oil prices to the moon 3.) Black Swan.

    If those 3 do not get in the way, I foresee a stronger economy by year’s end and an Obama 2nd term.

  34. cognos says:

    Just a few concurrent points:

    Please REMEMBER how many times Santelli has said:

    - US Interest rates are going back to 10%
    - The USD will collapse
    - Hyper-inflation was coming (don’t see it in houses, ha)

    He has been saying ALL of those things, and very very LOUDLY… for over 5 years(!!!). Seriously people… can someone whip out a straight jacket and chart him away for losing everyone enormous money.

    Its just wrong, and its been stupid, and its over.

  35. cognos says:

    On NFP… all this stuff about low participation is simply hogwash. Its stupidity of the largest kind, bc it completely misses THE important trend -

    a) we are wealthy
    b) baby boomers are all near retirement age

    Both of those will continue to lower the labor participation rate.

    This is something like Japan (and don’t bone that one like everyone else… the Japanese are wealthy… consumer the most luxury good per capita, the most electrify per capita, eat 70% of the world blue fin tuna and king crab.. for a reason. And its not bc they are poor).

  36. [...] And so is Barry Ritholtz [...]

  37. boston says:

    MightyMo Says:
    9:05 am
    yes, there is interest a guide to various ways to read BLS employment data

    I’ll second that. It’d be nice to read something in lay terms, so as the year goes along I can parse it myself….

  38. sellstop says:

    I remember a few months ago when Liesman and Santelli got into a spat on the air and Liesman told Santelli that, to paraphrase, “all these people who are following you, you’re costing them money”. I commented on it in my blog. And then a couple months ago I stated on Zerohedge that Zerohedge was a “one trick pony” and they were costing their believers money. A couple days later I found I could’nt log in to ZH anymore. I guess I got kicked out.
    ZH is selling the doom thing. And they don’t tolerate someone who sheds light on their scam…..


  39. On James Pethokoukis, I’ve noticed that he’s one of the large number of conservative commentators (many of whom pose as analysts) who cite Reinhart and Rogoff’s work as completely authoritative when it comes to the need for cutting public debt, but omit any mention of the slow recovery in employment following financial crises. I wouldn’t suggest that if you agree with one of a scholar’s (or pair of scholar’s) conclusions, you need to agree with every conclusion. Still, if you treat a work as authoritative when it suits your purposes, it seems to me that you need to explain why you implicitly reject the parts that don’t. That is, you need to do so if you want to claim to be engaging in honest analysis rather than partisan propaganda.

    So my question is, is it fair to question the integrity of anybody who treats “This Time is Different” as holy scripture when arguing for austerian measures, but dismisses the financial crisis for the slow economic recovery? I admit to my own bias to the left, which I ask what perspective I might be missing from the right.

  40. [...] I went into some detail as to why a few people got the NFP data so (disingenuously) wrong. Then Invictus pointed me to this [...]

  41. [...] has been crushing the BLS flat-earthers the past few [...]

  42. [...] Barry Ritholtz responds to the naysayers on the most recent BLS report: 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. [...]

  43. [...] – Reuters Greek Leaders Wrestle With Spending Cuts Demanded for Rescue – Bloomberg A Few Thoughts on the Employment Situation – The Big Picture Seasonal Factors & January’s Encouraging Labor Report – [...]