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Evidence Of Employment

 March 09, 2012 07:59 PM


Friday, the US Bureau of Labor Statistics (BLS) released February's Employment Situation report, aka, the unemployment report. In the month, the unemployment rate held steady at 8.3%, matching analysts' estimates. Private payrolls, however, beat estimates—rising 233,000. Government payrolls continued to fall, this time by -6,000. So there you have it. The labor market continued improving last month, at least according to government data.

Yet many remain skeptical regarding the improvements—noting government employment data have statistical issues. (Some even take it far, far further.) Without doubt, we certainly agree taking government data with a grain of salt is wise. Consider, for example, the unemployment rate can move (up or down) even if there are absolutely zero people hired or fired in a given month. But it isn't as though BLS data are without value.

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BLS unemployment data have a very long history, contain many different statistical points and are widely watched by analysts and investors. In that sense, how these points relate to expectations can be important. Also, the data provide one potential way to assess health of the labor market—a way to see trends. And trends indicated by government data can easily be tested using non-government-sourced data.

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Payroll services firm ADP has published a series of payroll data since 2001. Now, that's perhaps too short to draw many major macroeconomic conclusions on its own (few economic cycles are contained in that timeframe). But it could add color to one's assessment of government labor market data.

Exhibit 1: ADP Private Payrolls vs. BLS Private Payrolls (Monthly Change, in Thousands)

Sources: ADP, US Bureau of Labor Statistics, Federal Reserve Bank of St. Louis.

As shown, the two tend to track each other closely—and both show relatively similar-sized job gains in recent months.

But one needn't stop with ADP. The Institute of Supply Management (ISM) conducts monthly surveys regarding employers' expectations—and one component is hiring. Now, these indexes don't necessarily show how many jobs were added. But they do show the prevalence of expected hiring by private businesses—painting a picture of expected job supply.


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