Saturday, October 6, 2012

Welching on the Jobs Report?

Tim Mullaney of USA Today reports, Welch job report claim dismissed by economists:
What is this: A conspiracy theory so far-fetched it only commanded the seventh-most prominent headline on the Drudge Report?

The Twitterverse exploded Friday with claims that September's unemployment report, which showed the unemployment rate falling sharply to 7.8%, must have been cooked.

Retired General Electric CEO Jack Welch claimed that President Obama's "Chicago guys will do anything. . . . Can't debate, so changed the numbers.''

A conservative columnist for the Washington Examiner named Conn Carroll argued that Democrats lied en masse to the Census Bureau about finding jobs so the president would look good. And a conservative blog called the Washington Free Beacon reported that two economists from the Bureau of Labor Statistics have donated money to Obama's campaigns.

"Bollocks,"' Wharton School economist Justin Wolfers said. "Once you understand how the numbers are collected and processed, you understand that it's literally impossible to fool with the numbers.''

Manipulating the unemployment rate would require the cooperation of thousands of people -- not to mention violating federal laws.

The unemployment rate is based on a survey of 60,000 households, conducted at the middle of each month because holidays, which can result in short-term hiring or layoffs, are usually at the beginning or end of a month, said Karen Kosanovich, an economist at the U.S. Bureau of Labor Statistics who works on the survey.

About 1,500 Census workers gather the data, and the survey dates back to 1940, Kosanovich said.

"It's designed to be representative,'' she said. "People have thought about this for decades.''

Census sends raw data over to BLS, where civil-servant economists compile it and add seasonal adjustments, she said. The work is typically not done until the day before the report is released, she said.

The White House Council of Economic Advisers isn't told the number until the evening before release. Even the president is barred from speaking publicly about the data until an hour after it is released, according to a 1985 regulation issued by the Office of Management and Budget.

The BLS uses the household survey to estimate the unemployment rate because household heads know whether anyone in the home has a job, or is looking for one, Kosanovich said.

The agency estimates the number of jobs through a larger survey of 140,000 business establishments. The household survey has a larger margin of error than the establishment survey, meaning that its estimates of job growth are often subject to big revisions later on, she said.

The household survey, which said the economy added 873,000 jobs last month while the establishment survey said only 114,000 jobs were added, has a margin of error of plus or minus 280,000 jobs.

But human-resources people who fill out the establishment survey have no way to know how many people are looking for work, making it impossible to calculate the jobless rate through that poll, she said.

Economists never question the integrity of U.S. economic data, said Diane Swonk, chief economist at asset management firm Mesirow Financial.

``You can't fool Americans,'' Swonk said. ``At the end of the day we're a very transparent society.''

Joe Nocera of the NYT also asks, Jobs Report: Cooked or Correct?:
“Unbelievable job numbers,” tweeted Jack Welch, the iconic former boss of General Electric on Friday morning, moments after the Bureau of Labor Statistics released its September jobs figures. “These Chicago guys will do anything,” he continued. “Can’t debate so change numbers.”

The jobs numbers, unquestionably, gave a boost to the Obama campaign, still reeling from the president’s poor debate performance. While the bureau’s survey of businesses showed a ho-hum rise of 114,000 in nonfarm employment, the unemployment rate had somehow dropped from 8.1 percent in August to 7.8 percent, far exceeding expectations. Thus, a month before the election, and for the first time in Obama’s presidency, unemployment was under 8 percent.

Welch smelled conspiracy. And he wasn’t alone. “Total data manipulation,” tweeted a writer at Zerohedge, a financial news blog. “Such a farce.” Fox News spent much of Friday morning piling on.

It’s worth pointing out that the last time anyone accused the Bureau of Labor Statistics of being politically motivated was when Richard Nixon did so in 1971. Upset that the bureau was releasing figures showing higher unemployment during his re-election campaign, he asked his hatchet man, Charles Colson, to investigate the bureau’s top officials, including its chief, Julius Shiskin.

So Point No. 1: the idea that a handful of career bureaucrats, their jobs secure no matter who is in the White House, would manipulate the unemployment data to help President Obama, is ludicrous. Jack Welch knows it, too; when I called him Friday afternoon, he quickly backpedaled. “I’m not accusing anybody of anything,” he protested. But he went on to add that everything he’s seen suggests that the economy remains in the doldrums, and it just didn’t seem possible that the unemployment rate could have dropped so drastically, and so quickly.

Hence, Point No. 2: there is, indeed, something a little strange about the way the country derives its employment statistics. It turns out that the statistics the bureau releases each month are generated by two different reports. One, called the establishment report, is a survey of businesses. That’s where the 114,000 additional jobs comes from.

The second is a survey of 55,000 households, where people are asked about their employment status. Extrapolating from the survey, the bureau concluded that an additional 873,000 people had found work in September. It is that number that brought the unemployment rate from 8.1 percent to 7.8 percent.

When I asked a bureau spokeswoman why there was such divergence between the two numbers, she said she had no idea. “The reports are totally separate,” she said.

When I put the same question to economists, they shrugged. Maybe it was because an additional 582,000 Americans were working part time, which doesn’t show up in payroll statistics. Maybe it was because of increased government employment. For some unexplained reason, there is always an uptick in September. (“Maybe it has something to do with going back to school,” said Mark Zandi of Moody’s Analytics, who quickly added, “I’m just guessing here.”)
In any case, it wasn’t anything economists hadn’t seen before. Sometimes the two surveys delink, though over the long term they tend to reinforce each other. In the short term, however, the household survey is considered the more volatile — and less reliable — of the two numbers.

Which leads to Point No. 3: there is something truly absurd about having the presidential race hinge on the unemployment rate. Even putting aside the reliability of the short-term numbers, the harsh reality is that no president has much control over the economy. That is especially true of President Obama, whose every effort to boost the economy these past two years has been stymied by Republicans. Again and again, they have shown that they would rather see the country suffer than do anything that might help Obama’s re-election.

There is rough justice in the way things are playing out. Having spent the last year wrongly blaming the president for high unemployment, Republicans can only stand by helplessly as the unemployment rate goes down at the worst possible moment for them. Fox News scoured the data Friday, looking for signs that the economy wasn’t improving. They found some: high unemployment for African-Americans, for instance, and fewer manufacturing jobs.

But the data were largely overwhelmed by positive signals. In its revised figures for July and August, for instance, the bureau said that more jobs had been created than it originally estimated. People with only high school degrees were finding jobs. The number of people who had been out of work for six months or more was at its lowest point in three years.

Whether the Republicans like it or not, the economy is slowing getting better.

Awful, isn’t it?
Yes, just awful. Don't know where Jack Welch got his education, but anyone claiming that the US government can 'manipulate' the jobs data (including the dummies at 'Zero Edge') is simply out to lunch. Jack Welch and Donald Trump, who also chimed in on the jobs report, should learn to keep their mouth shut. They're doing more harm than good to the Republican cause.

As for the divergence between the household survey figures and the establishment figures, keep in mind the former is much more volatile. When taken over three months, to smooth out the volatility associated with this survey, the household report is showing a more modest (and realistic) jobs creation of 186,000.

Still, this was the jobs report Obama has been waiting for:
The decline in the unemployment rate in September came for all the right reasons: Employment rose, unemployment fell, and the labor force increased. The employment-population ratio (the percentage of adults with a job) rose from 58.3% to 58.7%. The last time it was higher was in September 2009.

The employment report is compiled from two separate surveys: one of businesses and the other of households. The report was half of a blockbuster, with the household survey blowing the doors off of expectations, and the business survey performing about as expected.

In the household survey (which is considered slightly more volatile), employment rose by an incredible 873,000 in September, while unemployment fell by 456,000. The labor force increased by 206,000, so the decline in the unemployment rate wasn’t due to people just becoming too discouraged to look for a job.

The survey of business establishments was good, but not as great as the household survey. It showed that payrolls increased by 114,000, as expected.

The good news was that job growth in the previous two months was revised higher by a total of 86,000. Payrolls are down by just 61,000 since January 2009, when Obama took office.

And even better, average wages rose by 0.3% and income from wages and salaries increased by 0.6%.

Of course, one jobs report doesn’t change an election, or show that the economy is all better. It doesn’t change the fact that the economy is still growing too slowly, or that far too many people are unemployed or underemployed.

If you think President Obama has failed, you’ll still think that after this report. And if you think that the president has the right policies to the turn the country around, this report is vindication. And if you haven’t made up your mind yet, hurry up. You’ve only got 32 days.
Exactly, one jobs report doesn't change the election or show the economy is all better. Employment growth has been frustratingly sluggish in the United States and there is considerable room for improvement. Having said this, there is no denying the economy is slowly getting better despite all the challenges in the global economic landscape.

In Canada, the jobs situation continues to surprise economists as the economy added another 52,000 new jobs in September:
Canada’s economy added 52,000 new jobs in September, the third-largest gain of the year, surprising economists who had predicted a figure of 10,000.

Finance Minister Jim Flaherty said he was "encouraged" by the news and said 820,000 jobs have now been added since July 2009, the strongest job creation record in the G7.

September's gain pushed year-over-year job creation to 175,000.

Carlos Leitao, the chief economist at Laurentian Bank Securities, told CTV’s Power Play that while job creation in Canada over the past 12 months is “far from spectacular” when looked at on a year-over-year basis, “it is certainly good and definitely better than our neighbours south of the border.

“We were expecting a much more subdued pace of job creation,” he added.

Ontario saw the most significant job growth with 31,600 new jobs added.

Most new jobs were created in the retail and wholesale trade sectors, with 34,000 new jobs added, while 29,000 new jobs were created in construction, according to Statistics Canada

About 24,000 jobs were added to the information, culture and recreation industries, and some 8,700 to the agriculture industry.

Male workers aged 25-54 were the biggest winners when it came to job creation.

"With this increase, the employment level for core-aged men is back to its pre-recession peak of October 2008," Statistics Canada said.

However, the job gains did not slow the unemployment rate, which increased to 7.4 per cent, or one-tenth of a point, as 72,600 Canadians entered the labour force.

And aggregate work hours were actually down 0.3 per cent, Scotiabank's Derek Holt pointed out.

"It's hours worked that get people paid so this is a significant dent against the headline. It's not clear to me how this happened if headline and full-time jobs were up so solidly," he said.

Also, 19,000 workers in a general category called other services lost jobs, as did 17,000 workers in business, building and other support services.

In addition, two-thirds of the new jobs where in the self-employment category, a figure that dampened some economists’ enthusiasm.

“You’re never sure exactly what those self-employed jobs are,” Leitao said.

However, he added that the income generated from employment is fairly steady.

“There’s a myth that all the new jobs here are in low wage occupations. That’s not quite the case. Fairly high wage occupations are getting their fair share of new jobs,” he said. “So overall a good picture in Canada.”

Economists have recently predicted Canada’s economy would struggle in the face of expected downturns in the United States, Europe and China.
Must admit, I'm surprised by the strong employment gains in Canada and think they will be revised down in the future. When I talk to restauranteurs, taxi drivers in Montreal and with my buddies in other cities in Canada, they all tell me business is down across the board. If jobs are booming why aren't people spending?

Part of the reason is that Canadians are indebted up to their eyeballs. According to new media reports, real estate is no longer the hulking villain driving Canadians deeper into debt (not true, real estate remains the single biggest reason why so many are in debt). The new bad guys on the block are the automobile loan and its sidekick, impulse buying that costs the average Canadian $3,720 per year:
TransUnion credit bureau reports that the average Canadian's non-mortgage debt of $26,221 in the second quarter of 2012 was the most since it started tracking the figure in 2004. While credit card and line of credit debt was down year-over-year, automobile debt soared 13.2 per cent during the period, for an overall rise of 2.4 per cent in total non-mortgage debt.

"If there are any sudden economic shifts such as a significant rise in unemployment, then it's quite conceivable the delinquencies will rise with debt levels," said TransUnion's vice-president of analytics Thomas Higgins in a report.

Instead of going into debt to buy assets that usually increase in value, people are borrowing to buy automobiles that depreciate once driven off the lot. Also, there's been a sudden increase of "debt settlement" companies, which charge clients an upfront fee to arrange for them to pay off only a portion of their debt owed to unsecured creditors.
And there's been a renaissance of companies offering so-called NINJA loans that caused the American housing crisis of 2008. The changing type of household debt has had a profound effect on everything from softening prices that will make houses more affordable for young people, to surprising contracts just negotiated by Canadian Auto Workers.

The U.S. housing crisis caused citizens there to rein in their spending, while the ratio of household debt to income soared to 152 per cent in Canada. Young Canadians were buying instead of renting and often skipping the "starter home" phase and going straight into larger, more expensive family homes. Middle-aged Canadians were buying rental or resort properties in addition to their principal residences.

But scoldings by Bank of Canada Governor Mark Carney and federal Finance Minister Jim Flaherty about dangerous household debt levels, combined with a series of rules tightening mortgage lending and the threat of rising interest rates, recently caused Canadians to reduce their real estate purchases.

But TD Economics reported that "growth in non-revolving consumer credit has been robust as banks have eased lending standards on auto loans considerably more than on credit cards and mortgages."

A sign of how blasé Canadians have become about debt comes from a Canadian Press story on a survey done for bankruptcy trustees Hoyes, Michalos & Associates, indicating that if a person needed to raise $2,000 within a month, 92 per cent would likely borrow it.
All this tells me that far too many Canadians are living way beyond their means and are one job loss away from suffering serious financial hardship. So far all is well but this can quickly change. Just look at Australia, another standout economy shielded by resources. It is now showing signs of slowing as conditions are getting weaker.

Below, Leo Hindery, managing partner at InterMedia Partners LP, talk about the U.S. economy, the September employment report released today and the presidential election. Jason Schenker, president of Prestige Economics LLC, also speaks. They speak with Deirdre Bolton, Michael McKee and Peter Cook on Bloomberg Television's "In the Loop."

And Alan Krueger, chairman of the White House Council of Economic Advisers, talks about the U.S. September employment report and former General Electric Co. Chief Executive Officer Jack Welch's Twitter posting accusing the Obama administration of manipulating the data for political advantage. Krueger also speaks with Deirdre Bolton on Bloomberg Television’s “In the Loop.”