September 08, 2007
Jobs numbers disappoint
Was that the other shoe we just heard drop?
The Bureau of Labor Statistics reported yesterday that the number of Americans on U.S. nonfarm payrolls, as measured on a seasonally adjusted basis by their survey of establishments, fell by 4,000 workers in August, the first monthly decline since August 2003. The previous month's job growth was revised down from the 92,000 gain reported last month to 68,000 claimed now; (here at Econbrowser, I don't mind reminding you, we proposed 60,000 last month as a better estimate for July job growth). And the June growth, which was initially claimed to have been 132,000 (and yes, we also told you at the time that seemed too good to be true), is now claimed to be only 69,000.
Ray Stone thinks that seasonal adjustment may have made the August numbers appear worse than they are; the reported 28,000 drop in government employees may be particularly suspect. On the other hand, he and many of the rest of us believe that the drop in construction employment may be worse than the 22,000 decline that the BLS estimates for August.
One month does not a trend make, but the year-over-year changes in the seasonally unadjusted employment I think could now be declared to have definitely slowed down:
ADP's payroll records for 23 million Americans gave essentially the same picture. ADP estimated a 38,000 net gain in private sector employment in August. If BLS is correct that we lost 28,000 public sector jobs in August, we'd have to subtract 28,000 from the 38,000 ADP estimate to get an estimate of total August employment growth of only 10,000 jobs based on the ADP payrolls. A third source I like to use is the separate BLS survey of households, according to which U.S. employment fell by a seasonally adjusted 316,000 people in August. Unless you completely ignore the household numbers, it's hard to avoid the inference that things may be even worse than the BLS establishment and ADP payroll numbers are suggesting. The weighted average that I've been using to pool the three sources of data together gives an estimate of
In other words, it's not unreasonable to claim that we had a net employment loss for August of 65,000 jobs.
The earlier news this week, such as the Fed's Beige Book assessment, preliminary retail reports, and auto sales had been looking reasonably solid, though Calculated Risk was unpersuaded. However optimistic you may have been coming into Friday, however, the employment numbers seem bad enough to turn everything sour.
Posted by James Hamilton at September 8, 2007 06:30 AMdigg this | reddit
If the FED had lowered interest rates last month then the unemployment numbers would have been taken in stride because the FED would have shown that they understood the serious problem and were prepared to deal with it. As it is there has been a serious loss of confidence in the FED and Ben Bernanke and his understanding of the situation.
The FED must lower the FFR and if they really want to return confidence to the system it will need to be at least 50 pts. Holding will be an absolute disaster, and now 25 pts will be considered an inadequate response. The seriousness of the problem can no longer be hidden.
Yes, Professor, the other shoe has dropped on BB and his FED.
Posted by: DickF at September 8, 2007 07:42 AM
Aw, DF, I hope the Fed does not cut rates. Such would just forestall the imminent and inevitable stock market correction/crash, derivatives unwinding, and big slowdown (we need a big, protracted slowdown to absorb all of those empty, falling-in-value houses/condos that we have lying around).
The sooner that we stop rampant money creation -- i.e., fiat and credit money -- the better. Please, Ben, no rate cut.
Posted by: jg at September 8, 2007 12:10 PM
Another interesting story is the drop in the labor force participation rate. I know several people who voluntarily retired in their late 50s with fairly modest pensions and 401Ks. I suspect that a substantial number of boomers are ready to dropout of the labor force at the first opportunity.
Posted by: Anonymous at September 8, 2007 07:38 PM
ADP's data for non-farm private employment has been growing since January, 2007, but at an ever declining rate, i.e., the second derivative is negative and getting more negative. BLS data for the same series and time period is growing in a straight line. This looks a lot like the 2002 period when ADP's data turned up before BLS data, as the recovery started - only now it is in reverse. Now that the birth/death (trend following) model for small firms is such a large component of BLS data, it leads to the suspicion that BLS is trapped by their methodology into reporting dubious numbers. If (or as) employment continues to turn down, we'll see large restatements of prior months BLS employment data. If this happens, BLS data has been useless year to date for policy decisions. A good economics research project would be to determine whether employment data from ADP, Paychex, and a few other large payroll firms provides better insight into employment trends than BLS data.
Posted by: Mike Laird at September 9, 2007 02:52 PM
Generally you and I seem to be on the same page but do not be deceived by terms that have been distorted in meaning. Today many define "credit money" as credit issued by a bank. Ludwig von mises was the one to define credit money and his definition is not the same as the most common use today.
Mises in his "The Theory of Money and Credit" states:
"A third category may be called credit money, this being that sort of money which constitutes a claim against any physical or legal person. But these claims must not be both payable on demand and absolutely secure; if they were, there could be no difference between their value and that of the sum of money to which they referred, and they could not be subjected to an independent process of valuation on the part of those who dealt with them."
This means that today under our Federal Reserve System money is only created by the FED not by banks. Those who hold to money creation by banks are stuck in the old free banking gold standard era.
Posted by: DickF at September 10, 2007 07:16 AM
I just followed the links to the Birth/Death model posting (http://www.econbrowser.com/archives/2007/06/reconciling_the.html).
I think that post is great and merits being put in a separate category rather like Tanta's ubernerd posts at Calculated Risk.
Posted by: Anon at September 10, 2007 01:44 PM