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Job Market Isn't As Strong As Government Wants You to Believe

Job Market Isn't As Strong As Government Wants You to Believe

By    |   Tuesday, 08 March 2016 11:47 AM


The February payroll estimate for the survey of businesses was 242,000 with upward revisions to December and January — so we are told the labor market is surging once more. More likely, it’s another sign of statistics being massaged and manipulated.

The first estimate for January of 151,000 jobs was considered a disappointment, even though there is statistically no difference between 151,000 and 242,000 — a 90 percent confidence interval leaves out a lot of, well, confidence in the exact number.

The saving grace last month despite the “weak” headline number was the purported surge in wages, which was immediately seized upon as the long awaited signal for “overheating.” In February, though, when job gains have been taken as inordinately better, wages collapsed.

In fact, average weekly earnings (combining wages and hours) fell by the most in the relatively short record of that series dating back to 2006.

A $0.03 drop in hourly wages translated weekly earnings from January’s $878.15 to just $872.04 in February, again the biggest reduction on record (and even worse as if wages were really growing the relative change is not compared to last month but what February growth “should” have been).

With wages fizzling in the seasonal statistics, the only other potentially significant part of the increasingly irrelevant payroll report is the labor force. After stagnating for most of 2015 (not counting January’s likely discontinuity), the labor force finally grew over last year’s last quarter plus the two months so far of 2016.

Overheating? Yeah, Right …

That growth wasn’t what you would expect of even the start toward overheating, rather it was an historic surge of unbelievable proportions. The BLS reports the labor force in February 2016 as 158.9 million compared with 156.9 million in September.

In other words, as the manufacturing recession deepened and even troubling indications for services spending and activity (not to mention GDP) all alongside almost continuous, serious market turmoil and uncertainty, the labor force expanded by 2 million.

There is nothing about the economy since the latter half of 2015 that would suggest a massive change in the labor force, to a historic degree, from apathy to suddenly looking for work. In 1984, that made sense inside the economic context where actual recovery was inarguable, visible as it was everywhere and to such a heavy degree, especially since it was the last time we saw such growth.

Economists and policymakers might like to make such a comparison, and have in more measured framing, but it just doesn’t correlate with anything else — particularly the ongoing and gaining “manufacturing recession.”

People Rushing Into Work Force?

To my mind, then, the only realistic scenarios are either there was indeed a rush into the labor force as people suddenly decided they better look for work while they still can, or it is yet another statistical artifact over-amplifying minor changes.

In today’s context, the BLS numbers stand out when they were never designed to. I don’t think that is going to change, which is why the payroll report is increasingly irrelevant. If the speedometer in your car reads 60 miles per hour when your engine is in idle and the vehicle barely moving, you don’t even think about stomping on the brake; you get the speedometer fixed.

That situation is far less likely in the real world since speedometers are built on solid mechanical principles and parts; the payroll statistics, however, are modeled regressions of variation open to any number of biases, yet they are taken as seriously as any speedometer.

In 1999, or even 2005, there wasn’t any pressing need to question those biases. Today there is, in no small part because they are really showing.

Jeff Snider is head of global investment research for Alhambra Investment Partners. To read more of his work, CLICK HERE NOW.

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The February payroll estimate for the survey of businesses was 242,000 with upward revisions to December and January -- so we are told the labor market is surging once more. More likely, it's another sign of statistics being massaged and manipulated.
jobs, unemployment, payroll, economy
632
2016-47-08
Tuesday, 08 March 2016 11:47 AM
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