Who gets the jobs story wrong? Everyone!

Tomorrow morning we will have the monthly ritual:  The Employment Situation Report.

Here are the main steps (rinse, lather, repeat).

  1. A stellar cast will be assembled to pontificate for a couple of hours on CNBC and Bloomberg.
  2. Leading economists and bloggers will quickly give reactions that will be instantly posted in MSM summaries.
  3. Alan Abelson (with help from assorted perma-bear sources) will explain in Barron’s on Saturday why the world is about to end — second only to Harold Camping.

What you should know, but will not hear

Why do we care about employment data?  Two reasons.

  1. Understanding the current economy.
  2. Figuring out how to fix it.

Understanding the past is crucial for good policy decisions.  The President and Congressional leaders should be paying attention, but there is no evidence that they are.

Failures of Understanding

There is a list of topics that are repeated monthly mistakes by the assembled jobs punditry:

  • Focus on net job creation.  This is the most important.  The big story is the teeming stew of job gains and losses.  It is never mentioned on employment Friday.  The US economy creates over 7 million jobs every quarter.
  • Failure to recognize sampling error.  The payroll number has a confidence interval of +/- 105K jobs.  The household survey is +/- 450K jobs.  We take small deviations from expectations too seriously — far too seriously.
  • False emphasis on “the internals.”  Pundits pontificate on various sub-categories of the report, assuming laser-like accuracy.  In fact, the sampling error (not to mention revisions and non-sampling error) in these categories is huge.
  • Negative spin on the BLS methods.  There is a routine monthly question about how many payroll jobs were added by the BLS birth/death adjustment.  This is a propaganda war that seems to have ended years ago with a huge bearish spin.  For anyone who really wants to know, the BLS methods have been under-estimating new job creation.   Who could have known?

As one who has lived in both the academic and trader worlds, I understand the tension.  One good thing about the academic process is openness and peer review.  Most of the Wall Street commentary skates by without any criticism.

With this in mind, check tomorrow’s employment summary.  I’ll bet that none of the sources mention the crucial points I highlighted above.

Failures of Prescription

If the only issue was mistakes by all of the leading media sources, the indvidual investor could celebrate.  It would provide yet another opportunity for us to gain an edge.  The problem is that investors are also citizens, and we demand and need effective leadership.

If leaders do not understand what is happening, how can they get policy proposals right?  A key question is whether policymakers should go for a macro solution or do targeted programs.  I plan to take this up in more detail, so today’s analysis is really only a preview.

Regular readers know that I have enjoyed the intellectual stimulation from the Kauffman Conference of Leading Economic Bloggers.  Kauffman does a quarterly survey of these bloggers and the results are quite helpful.

General topics that have been covered repeatedly include support for immigration and free trade.  Nearly all economists are on board with these ideas, despite the popular objections, as many of them make use of workers with J1 visas and other forms of work permits. .  Readers who think the economists are dead wrong should compare their own current views about Greece and a possible referendum.

Turning to specific ideas, the most recent Kauffman poll raised a number of questions, summarized in this table.


I am particularly interested in the XL pipeline question.  This raises a classic issue of absolute regulation versus marginal economic calculations.  I have participated in these debates for decades — scientists versus economists — and I freely confess my  bias.  I do not like absolute rules.  A typical question happened when an economist thought of an area as a “basin” where there was a reasonable tolerance limit at low cost.  The scientists idea of reasonable cost was “zero.”

I emphasize that “A Dash” is not a political blog.  I endorse an agnostic approach, where we can make profits no matter which party is in power.  Having said this, I am astounded by the current Obama policy.  Promoting job creation should include reducing excessive regulation.

I am disappointed that The Kudlow Report once again missed the main stories on job creation, but they did a good job tonight on the pipeline.  Take a look.


If any of the  big-time sources cover the missing elements I have described, feel free to prove me wrong in the comments!

Past References

Inside the Obama Plan

Errors on job creation

Perhaps my best prior article on this theme

And a little fun….

The Kauffman bloggers were invited to write their thoughts in the form of a haiku.  I failed to organize readers of “A Dash” in support of my effort, but it would not have mattered.  Maybe I’ll be more imaginative next time.  Here was my entry:

Jobs are needed now

Austerity is ill-timed

Action is required

Here are the top four choices.  I’ll bet you can all pick the winner!



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  • scott November 3, 2011  

    Mr. Waldman is the clear winner. Reminds me of this infamous stimulus plan:
    Way less than endless Fed purchases or TARP plans…

  • RB November 3, 2011  

    Banksters take the Street
    Refusing to give credit –
    A crisis gone waste
    Waldman was the best conceptually, though I liked the sound of Felix’s better.

  • AlMaine November 4, 2011  

    Jeff – More great work. Just came across Bob McTeer’s blog – he was president of the Dallas Fed. He hits the nail on the head in his recent column – “The first rule of forecasting should be don’t do it. Nothing good comes from it. The second rule, is, if you give a number, don’t give a date; or, if you give a date, don’t give a number. My rule, the third rule, is, if you have to do it, do it often.”

  • oldprof November 4, 2011  

    scott — nice link!

  • oldprof November 4, 2011  

    RB — Good one!
    The Diamond entry was the winner. I’m not sure the upper and lower case J’s show up well in the image. We all got four votes and I liked all of these.

  • oldprof November 4, 2011  

    AlMaine — I am a big McTeer fan, and enjoyed my conversations with him at the Kauffman meetings. Thanks for the kind words and the pointer.

  • Pacioli November 4, 2011  

    “For anyone who really wants to know, the BLS methods have been under-estimating new job creation. Who could have known?”
    I do not doubt your claim. But could you please provide a link? Thanks!

  • oldprof November 4, 2011  

    Pacioli — The BLS does a monthly revision that results from more businesses responding, so that is not what I am talking about here.
    They do an annual benchmark revision to compare their estimates with the actual counts from state employment offices. If this benchmark revision is small, it means the process has been pretty accurate. If it is negative, it means that the process has added too many jobs. If positive, it has added too few.
    In September the BLS announced the preliminary data. It showed that there were 192,000 more jobs than we thought. The actual adjustment will be made in February for the January report.
    Here is the link: http://www.bls.gov/ces/cesprelbmk.htm
    Thanks for the question.