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April Employment Report Preview

 May 03, 2012 08:30 AM
 


(By Jeffery A Miller) Employment is crucial.  Everyone wants to know whether the economy is improving and, if so, by how much. Employment is the key metric since it is fundamental for consumption, corporate profits, tax revenues, deficit reduction, and financial markets.

We have an accurate count on employment gains from state unemployment insurance offices, but there is a significant delay in compiling and reporting the data.  We just got the numbers for Q311.  We would all like to have this information sooner.

Let us call the actual data what it is:  The Ultimate Truth.

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The truth for the April report is something that we will not know for about eight months.  There are various methods for estimating what the Ultimate Truth will be.  The BLS has one method, but there are other approaches.

To get the sense of this let us revisit the most recent actual data, from Q311.  We now know that total employment increased by 750K jobs during that quarter.

The difference between the number of gross job gains and gross job losses yielded a net employment change of 753,000 jobs in the private sector during the third quarter of 2011. This is the largest net job gain since the first quarter of 2006.

So what were we really thinking at the time?

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The total of the initial BLS reports was 220K, including a scary "0" for the month of August.  The initial ADP estimates (private employment only) totaled 296K.  If you look at a BLS data series now it shows the reports for that quarter to total 383K, including the "benchmark revision" from last March.  The final series will be revised even higher when we get the new benchmark revisions next March, since the BLS estimates seem to be running lower than reality.

How Wrong this Is

One of the talking heads on CNBC today was saying that ADP "missed" the BLS number by an average of 48K per month.  This is complete silliness, since the scorecard used was based on the initial BLS estimate.  It is like asking a forecaster to predict someone else's erroneous estimate instead of the truth.

The investing world should belatedly accept a proposition that I have been offering for years:

The BLS method is one of several approaches for estimating the truth.  Those seeking truth should consider each sound alternative method, and draw conclusions from the composite.

This previous article in the series summarized the various blunders the experts make each month.

I will have more on the investment perspective in the conclusion, but first, what are we looking for tomorrow?

The Data

We would like to know the net addition of jobs in the month of April.

To provide an estimate of monthly job changes the BLS has a complex methodology that includes the following steps:

  1. An initial report of a survey of establishments.

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