A Little Perspective On Unemployment Reports

If you’re still a bit down about last weeks employment report, here are a couple of items that put a little bit different spin on things.

First, I came across this in the WSJ. It makes a good argument for taking the monthly reports with a grain of salt.

Judging from the closely watched payroll numbers, the job market looks like it’s on a roller-coaster ride. But it’s actually telling a pretty consistent story: The economy is growing at a pace too slow to make a dent in the unemployment rate.

The Labor Department’s initial estimate of how many jobs nonfarm employers added to their payrolls in November was a meager 39,000, a seemingly sharp contrast to October’s surprisingly large gain of 172,000 jobs.

Statistically, though, those numbers aren’t as different as they look. That’s because they reflect merely the change in a much larger number: the roughly 130 million people on nonfarm payrolls in the U.S. That number is an estimate with a margin of error. According to the Labor Department, we can’t be reasonably certain that it has changed at all unless it moves by more than 100,800 jobs.

“People pay way too much attention to the initial headline number, because it’s so politically sensitive,” said Joseph Carson, director of global economic research at AllianceBernstein in New York. “A change of even 100,000 is really statistical noise.”

Focus on the trends, not the monthly snapshots. To that end, Jake at EconomPicData.com has a series of graphs that make the case that the trend is our friend and offers his take on where we’re going:

Well, the manufacturing portion of the charts are an interesting study because the collapse in manufacturing was larger and the rebound swifter (though still WAY below the old trend). What initially happened was a huge spike in productivity as jobs were shed by the millions. Later, productivity continued to increase while hours worked eased higher (not necessarily through hiring). When manufacturers got all they could out of this remaining workforce, to meet demand they were forced to… wait for it… actually hire (hence, the jump in labor cost per unit).

This is what is happening, albeit more slowly, in the broader economy. The problem is there is still so much excess capacity in the system that companies are still able to squeeze more out of their existing labor force (i.e. there is still room for additional productivity growth and hours to be increased). I do think we are fast approaching the inflection point as cost cutting has run its course and corporations are now looking to grow the top line to grow profits. Considering the limited investment over the past few years, to meet output (it is my hope) corporations will need to once again rely on labor.

And the Business Insider has this from Deutsche Bank:

Deutsche Bank economists were caught out last Friday in their bullish call on U.S. employment data, with the surprise higher number.

Deutsche Bank were calling for a 0.2% fall in unemployment in November when we actually saw a rise to 9.8%.

But things are yet again about to change, because tax receipts suggest more people are employed than unemployment data does.

That doesn’t mean Deutsche Bank is as bullish as it was before: the bank has revised its unemployment projections, calling for a fall to 8.8% in 2011, rather than 8.0%

Interesting that tax receipts give a different picture than the government data. As that WSJ article notes, the monthly numbers are unreliable at best. They might even be painting a false picture.

Now don’t jump all over me for ignoring the negative signals. We have an unemployment crisis in this country and though it might be getting better slowly or at least stabilizing, that doesn’t mean that the problem is any less severe. And yes, I will agree with one and all that there are still lots of things that could go wrong and send us plummeting downward once more.

But, I do think it’s worth acknowledging the improvement that has occurred and seems to be continuing as well as viewing the various monthly economic with a little more sobriety and perspective.

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