Everyone gave a big cheer for the unexpected dip in the November jobless numbers. But to be blunt, the 10% vs 10.2% change in unemployment is virtually meaningless — and savvy investors know that. The jobs report is in fact a crucible of statistical direction and misdirection — like many of the economic reports coming out of Washington in recent months.
Step away from the headlines, and the jobless report really tells the story of a very fragile economy, one with glints of hope but with many hints of trouble ahead. First the clearly good news, and then a look at why some of the so-called good news isn’t what it appears to be.
On the bright side, hours worked increased and the temporary workforce rose.
Before employers start adding permanent hires they do one of two things: increase the number of hours current staff works or they hire temps. Back in September, I described how temporary help is a key leading indicator in the jobless report — they are the canaries in the coal mine. November marked the fifth consecutive month rise and the 52,400 new temps added is the largest gain in five years, according to David Rosenberg, chief economist and strategist at Gluskin Sheff & Associates.
In his Dec 7 note, Rosenberg (and others) also remark that both the September and October jobs numbers were revised upward — a nice trend.
But the remainder of the report is pretty rocky: In his post-labor report note Rosenberg takes a walk down the path of cognitive dissonance and shakes out some of the pieces of data that just don’t make sense.
The Bureau of Labor Statistics claims that the job rolls fell a slight 11,000, seasonally adjusted. Unadjusted, that number showed a gain of 80,000, “which therefore goes down as the third softest November reading in the past 18 years,” Rosenberg writes. “November is normally a month where between 300k and 500k workers find a job before the seasonal adjustment kicks in.”
That interpretation jives with what any retailer will tell you: Holiday-season hiring has gone lite. One recent small business survey reveals that business owners don’t believe the worst is over — and they are the engine for hiring and economic growth.
More on cognitive dissonance: Rosenberg moves on to the 58,000 uptick in service sectors jobs. But just the day before BLS released its numbers, ADP had reported a drop of 81,000 in the service sector. They can’t both be right. How to figure which one is correct? Rosenberg turns to the November ISM non-manufacturing employment index to reconcile the numbers. The non-manufacturing index continued to show contraction in hiring for the 19th consecutive month with a reading of 41.6. The former Merrill Lynch economic chief notes that that level “in the past was consistent with a -192k tally in service sector payrolls and never before aligned with a positive number.”
The numbers coming out of Washington this past month just don’t tell a clear story so far about what’s next and in some cases just don’t add up. Third quarter GDP, revised to just up 2.8%, was buoyed by personal consumption. But that just doesn’t seem possible: Retail sales receipts for states are down. And now, with weak pre-Christmas hiring, the jobless number falls. Some commentators charge that politicians are manipulating the numbers. But the story is much more complicated. The real trouble with the numbers is that they are based on samples, guesstimates, and theoretical economic constructs that just wouldn’t make sense to the average individual.
For example, that personal consumption number in GDP includes what one statistician informed me are “imputed values.” That’s not money that you actually spend but a value for services rendered. So if you own your home, the GDP number has an imputed rented value for that home that goes into the personal consumption number.So the number could rise if the “rental value” of your home rises even as you cut back on spending.
Over time GDP points in the right direction, but the particulars are unlikely to precisely match what most people know to be true about the economy. That said, even the 2.8% growth figure (revised from 3.5%) does reveal what everyone acknowledges and fears: The nascent recovery is unusually weak. Again, back to David Rosenberg: On average, first quarter growth in a recovery surges 7.2%, about three times the rate reported for Q3 (see chart).
No wonder, then that, after the uplifting jobs report, the weekly ABC Confidence number dropped to negative 47 from negative 45. (The number hasn’t been in the positive zone since March 2007.) Weak growth. Weak jobs. It’s hard to muster much confidence in the face of so much “good news” from our nation’s statisticians.