Okay, strap in for yet another tirade on why you should (for the most part) pay very little attention to the monthly Non Farm Payroll data, also know as the Employment Situation. Its hype to usefulness ratio is abysmally low.

Long time readers know this is a peeve of mine (See list of prior articles below). For newer readers, here is the reasoning behind my disdain.

The first has to do with the idea of modeling the real word via assembled data. What you end up with is some form of artificial creation that bears only a passing resemblance to the complexity of the real world. That would not be such a problem, if only you humans remembered what the great professor George E. P. Box advised us: “Essentially, all models are wrong, but some are useful.”

The usefulness of a model that is wrong is that we can into what us useful and ignore what is wrong. And we know from each month’s revisions that the initial read is off, often by a substantial amount. It’s a noisy series, subject to many errors and subsequent corrections.

 

 

Continues here

Category: Data Analysis, Employment

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.

5 Responses to “NFP: Pay No Attention to the Statistician Behind the Curtains”

  1. Angryman1 says:

    Looks like the US may have had 300,000+ months in September and November. There is your answer right there. Then a 300,000+ month in January?

    People need to look at the history of NFP. Littered with this. 1999(a “mecca” year for economic growth”) had this as well.

  2. Suggest “usefulness-to-hype ratio” rather than “hype-to-usefulness”. The hype/usefulness is huge! It’s the usefulness that’s abysmal.

    But actually, the true usefulness is NOT as a gauge of the economy. It’s useful as a gauge of how the beauty contest is going. That is, how do market participants feel that news about the economy affects their investment values and prices?

    Today it looks like a relatively weak employment report is good for bonds and interest-rate-sensitive stocks…

  3. ninaforrest says:

    I love the concept of the hype to usefulness ration! Now I have a way to describe my skepticism of everything I read or hear.

  4. RW says:

    Sharp Drop in Unemployment Due to People Leaving the Labor Force

    The headline unemployment rate fell sharply to 6.7 percent in December. However, this is not good news. The drop was almost entirely due to people leaving the labor force …

    • Angryman1 says:

      That is wrong. The drop was not enough to lower unemployment(both the U-3 and U-6) that far.

      Barry, time talk about NFP vs. Household data. That is where the bulk of the drop(the last 2 months) has come from. NFP may be dead.