According to research from TrimTabs Investment Research BLS might be underestimating the size of job losses due to poor methodology...
I certainly hope TT is wrong, however, they have been much better than BLS in reporting the "real" numbers... BLS's historical adjustments make the headline number look almost irrelevant.
That's certainly not good news if you ask me. Excerpts from the TrimTabs Employment Newsflash, reprinted with TT's permission...
TrimTabs employment analysis, that uses real-time daily income tax deposits from all U.S. taxpayers to compute employment growth, finds that the U.S. economy shed 169,000 jobs in July. Meanwhile, the Bureau of Labor Statistics (BLS) reported today that the U.S. economy lost only 51,000 jobs in July. In addition, we estimate total job losses for the year have reached 734,000 while the BLS estimates that only 463,000 jobs have been lost, a difference of 37%. We believe the BLS is seriously underestimating the harm high oil prices are inflicting on the U.S. economy. The BLS' flawed methodology will finally report that the U.S. labor market was in trouble in 2008 sometime next year. A comparison of TrimTabs' employment results versus the BLS' results from January through July 2008 is summarized below.
source: TrimTabs
We believe the BLS is seriously under reporting job losses for five reasons:
The BLS applies a mysterious "birth/death" adjustment to their employment survey to account for the formation of new businesses and business that close, which according to their website is an estimate. In an economic downturn, we believe the BLS consistently overestimates the number of companies that are formed and underestimates the number of companies that close.
This past month the "birth/death" adjustment was a negative 1.46 million jobs.
Only 40% to 60% of the BLS establishment survey is complete by the initial release date, and is subject to large revisions in subsequent months. In the past six months, the BLS has revised their employment estimates downward by 35%.
When economic growth is either accelerating or decelerating, the BLS misses rapid changes in employment due to their rigid survey methodology. In the past three months, economic growth has accelerated downward due to 80% year-over-year increase in the price of oil. The BLS' methodology will not pick up the impact of skyrocketing oil prices on employment for another six to twelve months.
The BLS applies flawed seasonal adjustments that typically mask subtle changes in the employment environment. In July approximately 400,000 jobs were added to total employment in order to arrive at a job loss of 51,000 jobs.
Most of the initial respondents to the BLS survey come from government employment centers and large corporations so the survey does not adequately capture changes in employment in small and medium sized corporations.
In other words, the BLS' July employment results point to a slowly contracting economy while TrimTabs' employment results show much larger job losses and a trend that is accelerating downward. Trimtabs' results tend to lead the BLS and indicate that economic conditions began to deteriorate in May, accelerated in the last half of June, and worsened in July as the impact of high oil prices began to filter through the economy.
In sum, we are bearish on U.S. economic growth near term for the following reasons:
Adjusting for calendar quirks associated with Leap Year, we estimate that income tax withholdings increased a dismal 1.6% year-over-year over in July. Since wage growth is running 3.1% year-over-year, a 1.6% year-over-year growth rate means employment growth is negative.
TrimTabs online jobs posting index is down 2% for the month and down 10% year-over-year confirming a weakening economy. The Monster employment index lost 3.7% this past month as employment demand declined across the U.S.
In spite of low short term interest rates and the gift of $93 billion in income tax rebates to U.S. taxpayers, economic growth continues to deteriorate. Now that income tax rebates are no longer available, the consumer has nothing to cushion the impact of high oil prices.
Oil prices are up 80% year-over-year and the increase in crude oil prices is acting like a vice slowly and relentlessly squeezing the life out of the U.S. economy. In inflation adjusted terms, oil is 28% higher than it was during the 1980s recession.
For a complete analysis of the current employment situation and economic conditions, refer to TrimTabs Weekly Macro Analysis: Focus on Employment published this coming Tuesday, August 5, 2008.
Stay safe out there, skepticalcapitalist@gmail.com
Archive Comments (1)
Let's say for argument's sake that TrimTabs is right regarding the jobs number . . . sooner or later the BLS will have an adjusted number reflecting that and the market will react by....going down? Going up? You see where I am going with this. Knee jerk reaction would be that the "true" number isn't priced into the market, giving a slight edge to the downside. I like macro-issues so much, but the market never seems to respond to the extent I predict.
Still waiting on the next edition of skepticalcapitalist blog.
--Jonathan
Posted by Jonathan Coyle August 10, 2008 2:54 PM