The government that told us that there were WMD in Iraq has also told us that payrolls increased by 157,000 in May.
We’ve pointed out before that the Bureau of Labor Statistic’s monthly job report has a well established history of being unreliable and overstated. The Business Employment Dynamics report, which is far more detailed and accurate, but takes time to compile, has come up with vastly lower results than the widely publicized job report. Example: in the third quarter of 2006, the jobs reports claimed 442,000 new jobs were created. The BED found only 19,000 new jobs. That’s an order of magnitude difference that has gotten just about zero press.
The financial press read the job report as positive news for the economy. The Wall Street Journal, in “Economy Picking Up Speed,” said:
The latest data show employment and manufacturing growing at a vigorous rate, suggesting the U.S. economy is regaining momentum after a slow start to 2007. The renewed strength, however, could raise inflation concerns for the Federal Reserve.
Nonfarm employers added 157,000 jobs to their payrolls in May, nearly double the 80,000 new jobs recorded in April, the Labor Department said Friday. Led by the service sector, the rebound brought the three-month average job gain to about 137,000, a pace strong enough to keep unemployment low and wages rising.
Cooler heads beg to differ. Smart Money turns to Barry Ritholtz, who tells us that 157,000 jobs in a month isn’t a good number, even if he believed in it:
“That’s very consistent with a 1% GDP,” says Barry Ritholtz, skeptic-in-chief at Ritholtz Research. “You need a 150,000 jobs a month just to keep up with population growth. In other words, this is essentially no job creation, relative to the population increase.
“With something as big and complicated as the U.S. economy and 143 million employees, you never want to take a single data point. What you want is the trend, the average of the past three months, the past six months. And what we’ve seen so far this year is that job creation is slower than it was last year.”
Ritholtz also takes umbrage at the government’s assertion that new construction outfits it doesn’t yet know about added 40,000 jobs in May, net of those lost when builders went out of business. “There is a planet somewhere in the Star Wars/Star Trek solar system that added 40,000 construction jobs this month,” he says. “But it’s not the United States on Planet Earth. Look at what the home builders are saying. Look at what the commercial construction companies are saying. They’re not hiring — they’re laying off left and right. It’s basically a statistical fabrication.”
Michael Shedlock at Mish’s Global Economic Trend Analysis is equally caustic:
Once again we have another totally unbelievable jobs report. This makes two in a row. For a recap of last months complete jobs fabrication, please see Birth Death Model Fatally Flawed.
The Birth-Death model is an input (more accurately, a plug) the BLS uses to allow for the effect on employment of the creation and failure of businesses. Back to Shedlock, who starts by quoting a MarketWatch story on the jobs report:
“Construction employment was flat, a continued puzzle to economists who have been expecting declines in the sector that have yet to materialize.”
Puzzle? What puzzle? Let’s take a look at the birth/death model to see if we can resolve the puzzle.
The puzzle is not whether construction jobs were lost (most assuredly they were), the puzzle is in a birth/death model that has added 89,000 construction jobs over the last two months (at a time when housing starts are declining at a 15.7% annualized rate). Wow! But that is not the only birth/death puzzle. The last two months have seen a grand total of 520,000 jobs assumed to have been created by the BLS’s model.
The GDP has plunged to .6% over the last two quarters, the slowest growth since 2002 (see Home Prices Rise:a Surprise?) yet the birth/death model is adding jobs at one of the highest clips ever.
The BLS has not released details of how their model works. Shouldn’t that come under the Freedom of Information Act? Or is the birth/death model a top secret security risk? How does the BLS get away with this nonsense and why does anyone believe these jobs reports? That’s the biggest puzzle of all.