Relax, It’s Just One Month

By now you’ve not only digested the BLS jobs data this morning but been subjected to any number of analyses of the numbers. If you still have some unfilled void for further soothsaying then here is a roundup of the musings of a selection of economists presented by the WSJ. Personally, I found that this one puts the whole thing in its proper perspective.

We suggest looking at longer-term averages to assess the state of the economy and labor markets. In that regard, the three-month average rate of payroll growth is now 168,000, about in line with the 175,000 monthly average increase in 2011 and 183,000 average in 2012, and consistent with our forecast for an average increase of 169,000 payrolls in 2013. Our view is that the February employment report overstated strength in the labor market, and the March report likely overstates any weakness. The trend in payrolls is consistent with our expectation that employment growth will slow somewhat in coming months as the large, and increasing, fiscal drag is absorbed, and it should reinforce the willingness of the Fed to keep its asset purchase program in place. –Michael Gapen, Barclays Capital

Actually Edward Lazear has an opinion piece in the Journal which does an even better job of showing just how unreliable the data tends to be. Unfortunately, I can’t find an ungated version of his piece so here is the nub of what he has to say.

Each month, the Bureau of Labor Statistics reports employment and the change in employment since the previous month. There are subsequent revisions, one and two months after the first announcement, until the number becomes final, sometimes up to two years later. The error in any given month tends to be very large, which means that its reliability is low.

For instance, the average number of jobs created per month during the 1996-2012 period was 78,000. But in the typical month, the initial estimate missed the final number by 73,000 in one direction or the other. This means that the average error in the initial report is almost as large as average job creation itself.

The quarterly numbers are somewhat better, but not by much. The picture improves somewhat for annual job growth, with the typical error being about half as large as the average job change itself.

You get the picture, I hope. This particular data set and in fact most short-term economic measures are best taken with a shaker not a grain or two of salt. So ignore articles like this, don’t sell your portfolio and go to gold and do enjoy the weekend.

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