Why Investors Cannot Rely on Mainstream Media Sources

Here at "A Dash" we have tried to demonstrate the gap between perception and data.  The big story for the mainstream media sources is always negative.  Who is interested in something that says the government has a plan that might work?

We have found an innovative way to make the point.

Misunderstanding Job Losses

One of the key problems facing the market is the wide gap in understanding between those who really study data and the journalists writing about it.  The journalists are all keyed to their ratings.  Often they cite the pop-economist bloggers who know little more than they do, but who also have high readership levels.

In this mutual admiration society the facts can easily get lost. Here is an example.

Dan Gross, writing for Slate, is a good journalist with some helpful economic insight.  In his recent article,  This Isn't Your Grandfather's Recession, he analyzes opinion about the stimulus package.

He is making a point about why the average person might be more negative about the economy than a Harvard Professor.  He writes as follows:

The typical worker—white-collar, blue-collar, no-collar—doesn't have anything like tenure or a guaranteed job. In fact, she may be working at a company that has just laid off 10 percent of its work force and may soon lay off more. She may be one of the 3.6 million people who has lost a job in the last year.

Regular readers of "A Dash" should be able to spot the error in this analysis.  We seem to be the only Internet source talking about the actual facts of labor dynamics.

How many people do you really think have "lost a job" in the past year?

The Facts

If Dan Gross got closer to the data, his point would be even stronger.  The 3.6 million job loss is a net figure.  The actual dynamics of employment show many more job losses, and also job creation.

People perceive losses, and these get plenty of publicity.  There has never been a time when gross job losses were 3.6 million, even in good times.  In our economy, job losses are at an annual rate of something like 30 million.  These are all widely publicized in layoff announcements.  Job gains, mostly through new business formation, are at a run rate of 26 million.  The negative perception, which actually makes Gross's point stronger, comes from the gross job losses.  We hear little about new job formation.

Readers and pundits alike would do well to look at some data, taken from the recent BLS Job Opening and Labor Turnover (JOLT) analysis: 

• At the end of December, there were 2.7 million job openings in the United States.  While most might be surprised, thinking this number is large, it is actually very small.
• The hire rate is 2.9% -- also a small number.
• Separations are at a 3.7% rate -- a large number.  That is the problem.
• Voluntary separations were 1.5%, a series low.  Readers may wonder why anyone would be quitting a job, but  it always happens for many personal reasons.

Here is  a summary:

Although job openings were essentially unchanged from November to December, the number of job openings has trended downward for 18 months. At 2.7 million in December, monthly openings were down 1.4 million, or 35 percent, since the starting point of the downward trend in July 2007. The job openings rate was 1.9 percent in December, a new series low.

Our Take

Anyone who does not follow the dynamics of the labor market is only telling part of the story.  This is important.

The net job loss understates the perceived impact.  It also overstates the actual impact, since the job creation is ignored.  Most people react to actual gross job loss and layoff announcements.  The new jobs get no publicity.

Comments

[psuedonym]

Venn, care to elaborate on what PERCENTAGE of total U.S. wages + benefits the NET impact of job losses comprises?

... and what that means on the margin?

[Manshu]

Very interesting statistics. Makes for an interesting read.

[VennData]

The salary and benefits of these jobs are a huge part of the equation, not to mention the hard-to-measure things like applicability of skills, and the "good jobs" arguments.

[Mike]

Hey Jeff--Why don't you create a new jobs barometer and publish it widely. You'll be rich. Famous. Go on CNBC! I can see it now--John Challenger in one box, you in the other, and Larry Kudlow lavishing you with praise!

Seriously, thanks for your balanced perspective, as always.

[Mike C]

"The big story for the mainstream media sources is always negative."

I heard somewhere there was a "conspiracy of optimism". :) I guess we all view the world through our respective lenses.

On a different note, taking the 30,000 ft top down view looking out 5-10 years instead of of the daily noise from this pundit or that pundit or various politicians, the question I am contemplating (and might make an interesting blog post) is "What is normal"?

http://www.contraryinvestor.com/mo.htm

See also Ray Dalio's piece in Barrons (It's a D-process)

Is normal the economy of the past several years prior to the 2008 deleveraging, or is this the new normal? Was the economy of this decade a "phony" economy juiced by unrealistic asset and housing appreciation and unsustainable MEW withdrawals? Or is what we are experiencing now the mother of all panic overreactions before a more sustainable higher growth pattern resumes?