Yes, it is once again time for everyone’s favorite economic indicator, the amusingly described "Employment Situation," aka Non-Farm Payrolls. Consensus is for a weak 80,000 new jobs, with the range of estimates running from 10,000 to 110,000.
In the past, I have harped on some of the niggling details of this report: The Birth/Death adjustment; The "Not-in-Labor-Force" (NILF), overall trend heading lower, and wages relative to
4.5 4.6 4.7% Unemployment rates.
My other macro concerns about this have been the NFP gains relative to population growth (0.894%, according to the CIA), and the current jobs recovery relative to past cycles.
Before the 8:30 release of this data, let’s review some of these issues, to help contextualize today’s numbers.
1. The Birth/Death adjustment: This was formerly a minor adjustment accounting for new businesses that has morphed into a major accounting headache. After the 2001 change to the B/D methodology, this previously minor contributor to NFP data has mushroomed into the dominant factor in NFP growth.
That’s problematic, because unlike the rest of of NFP data, this is not actually measured — i.e., not counted payroll data — but rather is an extrapolated hypothesis.
As the following chart shows, it has taken over the BLS model to the point where NFP data is now dominated by this guesstimate; That suggests tom the data is increasingly likely to be increasingly inaccurate.
2. Slowing NFP Trends: You can ignore any given NFP report; You cannot ignore the overall trend from year to year. As we noted last month, the trend in the average monthly job creation is not encouraging:
- In 2006 was 226,000 new jobs created per month
- In 2007, that number fell to 122,000;
- In Q3 2007, that number fell to 74,000
One of our favorite leading job indicators gets mentioned in today’s WSJ. They observe that:
Temp jobs are down roughly 70,000 from a year ago, the biggest decline
in roughly five years. Construction employment held up in the 2001
recession, but was an important leading indicator before the 1990
recession. It is down more than 100,000 from a year ago, and it’s hard
to imagine that turning higher anytime soon.
3. Population Growth: The number of people in the US keep growing: 300 million, with a very high birth rate for an industrialized country, lots of legal and illegal immigration. If the population grows near 1%, that’s 3 million new people in the USA each year. Almost two thirds are working folk — immigrants and recent grads. (grads coming into the labor force are equal to a percentage of newborns)
Do the math, and you find that the economy needs about ~150,000 new jobs merely to keep
up with this population growth.
Whenever you hear someone on TV describing 110,000 new jobs as "robust, you know you are watching someone who is either a) innumeric; 2) an idiot; iii) a liar; IV) some or all of the above.
4. The Labor Force Participation Rate: Post 2001 recession, the labor Force bounced back, but then got wobbly, contracting from 2003-04. This looks to me like a soft landing, as the Fed successfully avoided (or at least delayed) the dreaded double-dip recession.
The run up from 2004-06 was very likely in large part Real Estate related — including RE Agents, Mortgage brokers, Construction/Contracting, etc. As Real Estate began to slow, and the crumble, we’ve seen the Labor Force contract significantly. This explains the low 4.6% unemployment rate: Many of these self-employed or independent agents simply left the workforce.
See the Economagic chart below:
5. Historical Job Recovery Cycles: We’ve been harping on this for quite a while, but here we go again: This continues to be one of the weakest post recession job recovery cycles on record. Whether thats due to the mild nature of the last recession, the unusually high job creation of the 1990s, or some other factor is arguable.
Regardless, since WW2, we haven’t had a worse set of data during the actual recovery phase. I came across an interesting pair of charts came from EPI. These will look familiar to long time readers of TBP:
You now have enough background to place the overall data into context . . .
No Recession in Sight – If You Are Nearsighted
Paul L. Kasriel
Northern Trust Global Economic Research
October 12, 2007
Job Outlook: Perhaps Weaker Than It Looks
JON E. HILSENRATH
November 2, 2007; Page C1
Bragging on historically weak job growth
October 5, 2007 | EPI Issue Brief #237