Regular readers know that I customarily post an employment report preview each month. This article looks at the forecasts from various sources and the results from our own model. Since I am not doing so this month, I want to provide some explanation.
Briefly put, there is so much turmoil and so little solid data that the forecasts are all suspect.
To review, my general method is solid. I use the following factors:
- The four-week average of initial jobless claims to show job losses.
- The ISM manufacturing index to reflect new hiring.
- The Michigan Sentiment survey to reflect the combination.
The survey data provide a reasonable fit over a long period of history, but I have less confidence in recent results. This poses a dilemma, since I also do not think that researchers should change indicators just because they do not like the forecast. I emphasize that my concern is with the method, not the outcome.
Expectations are very low -- job growth of under 100K. Just today, Goldman cut their forecast to 25K. My method is even gloomier, suggesting an actual net job loss. We all know that it might reflect the spending limit debate or higher fuel prices. Whatever the cause, there was a very glum period that might not be a good indication of employment.
The actual employment data from state reports suggests that job creation has actually been very good, even better the much-maligned BLS birth-death adjustment. The problem is that this information is about nine months old.
I expect a poor employment number, but I have little confidence in the forecast. There are just too many rapidly-moving factors right now. I remind everyone that the 90% confidence interval is +/- 105,000 jobs. And that is before any revisions -- just sampling error.
We know that government jobs are falling and that the Verizon strikers were reflected in the time period of the survey. There will be plenty of spinning, whatever the data.
The employment report will set the stage for the President's address to a joint session of Congress next Thursday. [This is the pre-game for the NFL opener between the last two Super Bowl Champions, my Packers playing at home.] I do not think that the market expects very much, although a really large loss in jobs will be seized upon as a recession indicator.
I am still getting entries in the doctor problem. I am enjoying and learning from this interactive experience, so I hope that everyone will extend a little more patience before I publish the solution.