WTF Is Wrong With The Jobs Data? Actual Numbers Were Strong- Seasonal Adjustment Is Wrong

The Bureau of Labor Statistics (BLS) must be staffed with Republicans. There’s something wrong with the headline number this month. It is consistent with the pattern of the past 5 months where the seasonally adjusted (SA) headline numbers appear to understate the trend of the actual, not seasonally adjusted (NSA) numbers.

The BLS today reported a gain of 96,000 in nonfarm payrolls. That compares with a gain of 252,000 in the actual, not seasonally adjusted number. August is usually an up month. Last year the NSA gain was 240,000 in August. In 2010, it was just 71,000. The 10 year average gain for August for 2002 to 2011 was 78,000.  Even the roaring bubble years of 2005 and 2006 did not have August gains as large as this year. August 2005 had a gain of 245,000, and August 2006 was up 202,000. Not only was this year’s gain the best in the last 11 years, it was the biggest August gain since 1996 (irrational exuberance, anyone?) which had a bump of 289,000.

By any standard, August’s performance was excellent. I’m not a statistician nor, thankfully, am I a ‘conomist, so I can’t tell you why the  SA numbers have been so consistently downbeat relative to the actual data. I know that the BLS does a 5 year look-back when calculating the SA number. That would include the collapse year of 2008 and the extremely depressed 2009, so it should not be a surprise that using that data to establish “norms” would result in distortion.

The BLS will also revise this month’s number, not only next month and the month after, but every year for the next 5 years as they hone the SA number to include not only a 5 year look-back, but a 5 year look back 5 years from now to pinpoint where this month’s number actually should have been. The truth is that the current SA number is a wild-assed guess and a fraud. It’s wrong, and the BLS statisticians know it. So let’s get real, ok. The SA data is unreal. The actual NSA data is much closer to real. Then there are withholding tax collections. Those are really real.

The numbers  above come from the BLS the Current Employment Statistics Survey or CES, a survey of business establishments. The BLS also does a survey of households. To further complicate matters, the household survey or CPS — Current Population Survey– tells a different story. In the CPS, August is a month in which the number always decreases. This year the number of persons reported as employed in August fell by 568,000 from July, not seasonally manipulated.  That compares with a drop  of 49,000 in August 2011 and a drop of 215,000 in 2010. The average loss in August for the previous 10 years was 452,000.

By this standard this August was bad. But not only is it inconsistent with the CES, it is completely inconsistent with the gain shown by withholding tax data for the August reference period. Witholding tax collections for the August reference period were up by 2% over August 2011.  That’s as adjusted for the year to year gain in average weekly earnings. Since we’ve adjusted for wage gains, the implication is that there were 2% more jobs this year. Using that 2% year over year increase, the total employed would be 143.142 million, instead of the reported 142.558 million. That would result in a month to month gain of  16,000, not a drop of 568,000.

So it’s a question of what to believe, a questionnaire sent out to a few thousand US households as a representative sample of the 115 million households, or the actual taxes that the US Government collects and reports in real time. I’ll take the tax data, thank you.

I like to focus on full time rather than total employment. Part time jobs are nice, and for many that hold them, they are a lifeline, but the important metric here is full time jobs. Without those, we’re dead.  Here again we get a different story. As opposed to the shrinkage reported in total jobs, full time employment in the CPS was up in August.  Some workers moved from part time to full time employment. August saw a gain of 83,000 in full time employment. This was weaker than the 527,000 in August 2011, but much better than 2010’s loss of 466,000.

The gain of 83,000 compares favorably with the prior 10 year average change in full time jobs in August of a loss of 95,000. This year the first half of the year saw very strong gains in full time employment. The August number looks like a moderation of that trend. The 3 month gain was 1.58 million, versus 1.67 million in 2011, and the prior 10 year average of 1.87 million. The 10 year average was skewed by the creation of large numbers of fake bubble jobs in 2005 and 2006 when the August quarterly gains were 2.27 million and 3.05 million respectively. Those kinds of gains are never coming back, inflated as they were by the fake jobs  in mortgage financing and construction that the housing bubble  created.  By the standards of “normal”  non-bubble years, the August numbers were pretty good on both a monthly and quarterly basis.

The chart above  gives some perspective on how far total employment and full time employment fell in the first stage of this depression, and how much they have yet to recover. The seasonally adjusted (SA) fiction is making things look even worse than reality again this month. This is nothing new.

Seasonally adjusted numbers frequently veer away from reality by the very nature of the arbitrary seasonal adjustment process. ‘Conomists and the media focus almost entirely on this nonsense, which attempts to compare one fictitious number with another fictitious number to derive a fictitious month to month change. Meanwhile they ignore the actual data and attack those of us who complain about the misleading nature of the SA data. The vehemence of ridicule and scorn that they heap on observers who complain about the SA data is a testament to just how insecure they feel about the SA garbage that they are supposedly analyzing.

If they are  going to emphasize the seasonally adjusted fiction, they could at least check it against the trend of the real data, the not seasonally adjusted (NSA) data.  The conomic establishment tries to downplay the actual data by calling it “not” data as in “not seasonally adjusted,”  which carries the connotation that somehow “seasonally adjusted” (SA) without the “not” in front of it is the real thing, when the opposite is true.

Wall Street and most academic ‘conomists seem to be  too lazy (or too crooked) to do the simple analysis of comparing year to year changes and the monthly rate of change in the real data to past years to get a clear picture of where the trend is headed. It’s so easy to do when the data is placed on a chart. But unlike technical analysts who actually know how to read patterns and trends in noisy data, the vast majority of mainstream ‘conomists who have sold their souls to the devil (CNBS) seem to have no clue how to to do that. They like complication because they think it puts the truth out of reach of the general public. In reality, the public gets it. They can tell by how they, their friends, families and acquaintances are faring in the real world.

This chart shows the year to year trend line connecting the August data in full time and total employment along with the raw NSA data, and the SA fiction. The seasonally finagled data shows the trend slowing in the total jobs number and actually going negative in the full time jobs number over the past 5 months. Meanwhile, the actual data shows clearly that both series are uptrending. The SA data is wrong.  That’s all there is to it.

June or July is usually the peak month for both total and full time employment. This year the numbers broke last July’s level in April. The economy was a couple months ahead of schedule in affirming the uptrend in jobs. The August actual data affirmed that that trend is continuing.

If we throw out all the confusing numbers and just look at the actual data on the chart, it’s clear that the trend is improving. But Wall Street wants more QE, and the headline numbers are just coincidentally playing to what the Street wants. I think that the Fed knows better and won’t act. In spite of that,  the trend is still supportive of a bullish trend in stocks.  The withholding tax data shown below also suggests that something in the labor picture is still undergoing modest but consistent gains, regardless of what the SA data says.  Increasing withholding tax collections of 2% in real terms are growing at double the rate of population growth.

Stock market performance is at the mercy of the Fed (0r over the past 12 months the ECB, not shown), and employment typically reflects them both. While at times there’s a lag, the linkage is undeniable. Over the past year, the SOMA has not reflected the impact of the Fed’s MBS purchases from the Primary Dealers, a subject which I cover in depth weekly in the Fed Reports. The graph of Fed purchases from the Primary Dealers has been rising steadily since last September. By cashing out the dealers via these MBS buys, the Fed enables the dealers to buy more Treasuries. The next week, the Treasury spends that cash. That’s how Treasury debt is immediately transformed into economic activity and slow and steady job creation.

It is activity that is sustained only by increasing government debt, and only as long as the Treasury Ponzi remains intact. But it does remain intact, and it’s resulting in steady gains in employment, including full time employment over the past year. The game should continue until the Fed picks up the marbles or until the other players run out of chips, which probably won’t happen as long as some players are  running away from the European gaming tables to play at the US casino or either the Fed or ECB continue to pump liquidity into the system.

 

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