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The Employment Situation Report: Lou Costello Math
One of Abbot and Costello's classic skits is “7 goes into 28 13 times,” where salesman hopeful Lou tries to show CEO Bud his math skills.
Vaudevillian math is the perfect starting point for discussing this morning's BLS Employment Situation Report, which is an exercise in that sort of fuzzy math.
Total nonfarm payroll employment rose by 467,000 in January, and the unemployment rate was little changed at 4.0 percent, the U.S. Bureau of Labor Statistics reported today. Employment growth continued in leisure and hospitality, in professional and business services, in retail trade, and in transportation and warehousing.
Bear in mind that Wednesday's ADP Payroll Report showed a loss of over 300,000 jobs—a variance of more than three quarters of a million jobs.
What happened? In a word: “adjustments".
Some Numbers Don't Change
The first indication of something amiss with the January report are the numbers that didn't change much if at all:
The number of unemployed people in the December report was 6.3 million. The number in the January report is 6.5 million. The creation of 467,000 jobs meant ~200,000 more people were without work.
The number of persons not in the labor force who currently want a job was 5.7 million in December. In January that number was also 5.7 million, causing the labor force participation rate to rise from 61.9% to 62.1%
There were 1.6 million marginally attached workers in December. There were 1.5 million in January.
If you're scratching your head trying figure out how those numbers add up, they don't. To get to the top-level numbers in the January report one has to first consult Table C for the “population control effect”.
One example is the size of the civilian labor force: the population control effect adjustment trims that number by around 137,000. How to raise the participation rate without pulling workers in off the sidelines: shrink the denominator.
Another example: removing the population control effect from the number of employed causes some 272,000 jobs to disappear.
In other words, removing the population control effect produces a drop in jobs numbers very close to the ADP numbers.
Rewriting Employment History
The January Report also shows how the labor department has rewritten employment history, in Table A:
Notice all the negative numbers? Those are the months the BLS has calculated it overstated job gains and is now silently retrofitting new estimates.
Alternative interpretation: job numbers from last summer are being dragged forward into the January Report.
That's the cynical view, that the Employment Situation Report is for January essentially a made up set of numbers, with only a tangential connection to reality.
It should also be noted that the December report came in as a huge climbdown from a stellar ADP Payroll Report. This time the ADP report was the bloodbath and the BLS report was stellar. Whether that constitutes evidence of manipulation is for the reader to decide.
Forcing The Fed To Tighten Into A Recession?
As Michael Every of Rabobank observed, a strong jobs number is very bad news for the markets, as it keeps the Fed on a trajectory of rate hikes—and the ensuing recessionary effect—at a time when the markets themselves are showing the sort of turbulence that already indicates a pending recession:
Markets now find themselves in the strange position of waiting for US payrolls today and wishing for a negative number, following the ADP, to try to at least stop the Fed from its own ‘Cool Runnings’ wipe-out. Even if that number is fake news, they will take it. Even if that means D.C. will start pushing for further stimulus cheques in a US economy seeing worse logistics/supply-chain problems than a few months ago. (Despite the central banks who didn’t see inflation coming last year saying this would resolve itself as things magically do.)
It is worth noting the major stock indices dropped dramatically during the morning trading as investors digested the report. Clearly, job gains of 467,000 were not seen as good news.
What the January Employment Situation Report means is that the economic mavens in the White House and at the Federal Reserve are flying blind. While the claim is made the economy is robust and even overheating, in reality neither the White House nor the Federal Reserve has a clear view of the employment situation.
In truth, the employment situation in the US is still dismal. One only has to note that there are still 5.7 million people not in the labor force who want a job to see the jobs situation has not improved from December. The population control effects applied by the BLS are little more than a thinly disguised attempt at turning the ADP bloodbath into a stellar number.
It is the bureaucratic equivalent of Lou Costello's demonstration of how 7 goes into 28 13 times.
Which is the perfect coda to today's Employment Situation Report .