Alan Abelson discussed yesterday's employment report, quoting Dunne and Henwood of The Liscio Report in his Barron's column. The analysis is so misleading that I could have used it as an example in my stat class in the old days. I'll point out several problems and take a closer look at the actual BLS data.
But first some background. Alan Abelson writes a humorous and witty weekly column. Except for some stocks that his pals like, he has been pretty much bearish since my subscription started in 1987. I guess that makes him a perma-bear. John Liscio had a great Barron's column and then started his own research service. He had a great method for using state data to build a picture of national employment. After his untimely death a few years ago, his staff continued the publication. Although I subscribed for a time in the 90's, I have not read it since Liscio's death, so my comments are based strictly on the material quoted in Barron's.
But first, take a look at the summary from Barry Ritholtz, who has studied and written extensively on the employment reports and the methodology used.
Link: NFP: Another in a long series of disappointments.
As we expected, yesterday's NFP was another stinkeroo. The 121k number was significantly below the 200k consensus, and far, far away from some of the myopically optimistic upside outliers. Let's delve beneath the surface a bit, first via Barron's Alan …
There are several problems with the quoted comments, but I'll focus on three.
First, there is a misleading characterization of the conclusion, without proper support. Note the loaded terminology of the "meager" job gain and the comparison to the "long-term" trend of 256K jobs. Here's what is wrong.
- There is no description of the time period used for the "long-term" trend, or where the current situation should fit. Frankly, I am suspicious of this statement.
- The current gain is not meager. David Malpass of Bear Stearns, who has been excellent in analyzing the current economic cycle, wrote about a year ago, "By our calculations, an establishment survey result of 125,000-135,000 new jobs per month would be enough to maintain the unemployment rate even if labor force growth continues at the solid pace it averaged over the past ten years."
- It is completely appropriate that the pace of job growth is slowing from the levels of last year. I think everyone understands that some slowing is needed. One gets the feeling that if growth had been stronger, these same analysts would have invoked the fear of the Fed.
There are a couple of other good points, and I am going to bring up some charts, but let's break this post up into parts.
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