Preview of the Employment Report for October

The Payroll Employment Game is a way to test your forecasting skill, learn something about government data and statistics, and have some fun at the same time.  There are also a number of good charts on factors thought to predict monthly employment changes.  Take a look!  Post the high score, and you can win a genuine Birinyi Ultimate Stock Selection Dartboard.

In preparing the game, we did our own regression model using the available factors.  It is actually quite good.  Barry Ritholtz, our favorite bearish analyst, always takes "the under."  The economic consensus for this month is job growth of about 125K and our model says to take "the over."

There is one problem.  Our model was developed using the final government data, after all of the revisions and benchmark changes.  That is what one gets whenever you do econometric modeling.  Meanwhile, the market trades based upon the preliminary report, with only a rare backward glance.

Briefly put, we will not know the real answer for a year or so.  Until then we just have an estimate.  All bets would need to be held in escrow!

Whenever you look at a forecasting model, you must ask whether the data used in developing the model were actually available at the time the forecast was supposedly made.  You might be surprised at what you find.

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