Payroll Employment Forecast

Regular readers know that we have developed a good regression model linking various economic data with the monthly payroll employment report.  Our prediction this month is for a gain of 154,000 jobs, more than the 135,000 consensus and more than the 120,000 needed to maintain the current unemployment rate of 4.5%

There are two main problems with forecasts of the job change:

  1. Our model (and those of everyone else) uses the final data series from the BLS.  This is after all businesses finally report in the survey and benchmark revisions have been applied.  The benchmark changes come a year or so later, and can be signficant.  This is all part of the non-sampling error.
  2. The sampling error for the report has a 90% confidence interval of almost 100,000 jobs!  That means that even if you knew the truth, the BLS might miss in its estimate.

You can check this out by playing our Payroll Employment Game.  It is cheaper and more fun than betting on the actual report.  The PEG site has a lot of information about the BLS method and surveys, as well as other charts and data.

Our prior work on this subject can be found here.

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4 comments

  • Shrek August 2, 2007  

    How do you incorporate the model into your trading?

  • Barry Ritholtz August 2, 2007  

    I call the Under!

  • Jeff Miller August 2, 2007  

    Shrek — Is that a trick question? 🙂
    I would not trade on our forecast or anyone else’s.
    I would stack our forecasts up against anyone’s, as judged by the final revised number that we will not get from the BLS for a year or more.
    As I’m sure you understand, I think there is too much error in the results for good trading.
    I also believe the Fed understands all of this and does not take any single report too seriously.
    What do you think?
    Jeff

  • Jeff Miller August 2, 2007  

    Barry –
    Thanks for stopping by. Your prediction is duly noted. Didn’t you win ten “under” bets in a row at one point?
    We are all waiting for the day when you can see a little economic sunshine in our future!
    Jeff