Friday, October 5, 2012

Meat Loaf, the Rear View, and Payroll Employment

You know that warning about "Objects in the Rear View Mirror Are Closer Than They Appear"? I love that. It's also a song by Meat Loaf, which is a subject for a whole other day, or maybe lifetime.  What might not be apparent is that safety, Meatloaf Meat Loaf, and the Payroll Employment Report have something in common. What? They aren't the same looking backwards. There's a lot of good reasons for this, and it's something that the BLS is very up front about, since the initial estimate of jobs comes from relatively poor data, whereas the later revised data is much more accurate. Let's go to the BLS:
Given this short collection cycle for the first preliminary estimates, many establishments are not able to provide their payroll information in time to be included in these estimates. Therefore, CES sample responses for the reference month continue to be collected for two more months and are incorporated into the second preliminary and final sample-based estimates published in subsequent months. Additional sample receipts are the primary source of the monthly CES employment revisions.
As we replace statistically projected data with real data, things get better. What is not as well known is that these revisions are not necessarily uniform through the business cycle. Let's add up the total job revisions in each year and graph them:
 Big negative revisions in recession year (really lagging the onset of recession year), positive revisions elsewhere. All this means is that the statistical projection used by the BLS is conservative; it doesn't want to go nuts every month and scream about jobs and have to explain this whole "statistics" thing over and over again. In normal times, this works great. But in recessions and recoveries, this conservatism means that recessions are initially understated as are subsequent recoveries. While you weren't watching, 877,000 jobs disappeared in 2008, and a million more appeared in 2009 to the present.

News media? We're waiting...

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