NFP WTF ?

NFP WTF ? [¹]

By TheBigPicture | 6 October 2007

Let's get into the details of what was by most traditional measures, a mediocre NFP report:

• Private sector employment growth was stagnant.

• Health care, and bars & restaurants were responsible for more than half the rise.

• Temp jobs, usually a good leading indicator of future job creation, fell 20,000.

• Government was responsible for nearly all of the upward revisions to the July and August;

• Manufacturing continues to lose lots of jobs quickly. (Negative 60,000 over the past two months).

• Retail hiring is trending downwards.

Having been out of the loop all day, I am somewhat perplexed over the subsequent [glowing] reports about this NFP report. I cannot say I understand why people are outright gushing over this otherwise middling number:

The Jobs Machine (WSJ)

Job Growth Looks Rosier, Easing Recession Fears (NYT)

Jobs: A September Shocker (BusinessWeek)

Talk about the soft prejudice of low expectations: These headlines are over a mere 110,000 jobs. There was obviously relief that this wasn't an even worse number. But understand the details: This is by no stretch of the imagination a solid month of job creation. This was weak NFP growth, failing even to keep up with population growth.

To review: Any report under approximately ~150k month (subject to revisions) is weak. It means that job creation is failing to keep up with population growth. Thanks [only] to the shrinking Labor pool, this has not had much of an impact on the Unemployment Rate, which ticked up a mere 0.1% yesterday.

Let's put these data points into some context average monthly job creation:

•  In 2006 was 226,000 new jobs created per month

•  In 2007, that number fell to 122,000;

•  In Q3 2007, that number fell to 74,000.

Even more damning has been the Birth/Death adjustments. In the 1990s, these were relatively insignificant. In 2001-02, it was less than 10% of total NFP each year. After a 2001 change to the format and weighting (effective in 2003), the B/D contribution to NFP went up dramatically. From 2003-06, Birth Death adjustments contributed between 35-41% of the total non-farm payroll job creation.

Then there is 2007. If we take this year's B/D adjustment versus NFP, we get a B/D contribution that is in excess of 76%. (Trailing 12 months B/D versus 2007 NFP data annualized).

Strong? Shocker? Jobs machine?

Hardly . . .

SOURCES:

charts courtesy of CHRIS PUPLAVA

Historical Net Birth/Death Adjustments
BLS, Department of Labor Statistics
http://www.bls.gov/ces/cesbdhst.htm

CES Net Birth/Death Model
BLS, Department of Labor Statistics
http://www.bls.gov/web/cesbd.htm

The Jobs Machine
WSJ, October 6, 2007; Page A20
http://online.wsj.com/article/SB119162827290050813.html

Job Growth Looks Rosier, Easing Recession Fears
MICHAEL M. GRYNBAUM
NYT, October 6, 2007
http://www.nytimes.com/2007/10/06/business/06econ.html

Jobs: A September Shocker
Michael Englund
BusinessWeek, October 6, 2007
http://www.businessweek.com/investor/content/oct2007/pi2007105_921337.htm?

U.S. Economy Down, Not Out
Overall Health Is Seen In Face of Deceleration;
Job Gains Lift Optimism
KELLY EVANS
WSJ, October 6, 2007; Page A3
http://online.wsj.com/article/SB119158634981050085.html

Normxxx    
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