Tuesday, July 06, 2004

Economic Theory: Surveys, Estimates, and Reports

What's the difference between a survey, estimate, and a report? As it turns out the difference can be rather large.

For instance the BLS (Bureau of Labor Statistics) has two different surveys that measure job creation or loss within the economy. The first is the household survey and usually get's the most press. The more stable and informative survey is usually called the payroll survey. It has a larger sample and has less room for error since it's based on many businesses reporting actual jobs gained or loss, whereas the questions in the household survey may lead people to misindicate their position. "Have you worked in the last month?" can afterall include anything from babysitting for cash to running a profitable small business complete with several fulltime employees.

From these surveys one can make estimates about national employment, unemployment levels, etc. These estimates can be accurate or very inaccurate depending on how one extrapolates from the base data and how representative it is. That's why it's always useful to compare these figures to reports. Reports typically are literally that, they're raw numbers reported from various sources or figures derived directly from raw numbers.

Reports by their nature can't show the whole picture, but they can show trends. The trends in the estimates, since they are only projections, are better interpreted in light of reports. Reports can be numbers like the number of new unemployment insurance filers a given week, or figures like the average time employed derived from such numbers.

The "jobs creation" figure of last month was 112,000 jobs in June. However there is some question about the validity of this projection. What should we compare it to in order to get a sense of what this number really means?

Well let's compare it to the report of planned job cuts and job hiring from corporations. That would give us a real solid number to interpret the 112,000 job "gain" projection for the national employment scene in June.

As it turns out MSNBC is reporting that the number of planned job cutbacks are still higher this year than last year, and are outpacing hiring for corporations.

The number of planned layoffs in the United States fell in June after rising for two straight months, but the level of planned hirings also fell in June, according to a report on Tuesday.

Outplacement firm Challenger, Gray & Christmas Inc., said planned job cuts fell to 64,343, down from May’s 73,368 but up 8 percent from a year ago. Last month’s job cuts were the lowest since the 59,715 recorded in June 2002.

Corporate hirings, which Challenger began tracking in May, fell to 38,377 workers, down 31 percent from May’s 55,307.

“The decline in June job cuts is good news, but it would not be surprising to see a rise in monthly job-cut announcements during the second half of the year,” John Challenger, the firm’s chief executive officer said in a statement. He also noted that job grow may be slower for the foreseeable future.

On Friday, the Labor Department said June U.S. non-farm payrolls grew by 112,000 jobs, less than half the level economists had forecast. Job gains in April and May were revised lower.

In Challenger’s report, the financial services sector reduced 7,685 jobs in June, the most among U.S. industries. The telecommunciations industry was second with 6,962 layoffs, and the government/non-profit sector was third with 6,386, Challenger said.

The financial services sector also cut the most jobs in the first six months during which employers announced 54,332 jobs, Challenger said. It was followed by the industrial goods sector with 49,481 layoffs.

Second-quarter job cuts totaled 209,895, down from 274,737 for the same quarter in 2003 and the lowest quarterly figure since the third quarter of 2000, Challenger said.

Historically, the second quarter is the slowest quarter for layoffs, followed by the summer quarter. Challenger said.

Based on recent data, if the trend of a fourth-quarter surge in job cuts is repeated this year, it could show up in the November elections, the firm said.

Challenger attributed slower job growth to companies being selective with whom they hire and the desire of management to squeeze more productivity from their existing workforce.

In a sign of companies’ reluctance to hire aggressively, the Northbrook, Illinois-based firm said the average job seeker takes 20 weeks, or about five months, to find employment, just a bit below the record 20.3 weeks in February.

So as we can see the reported numbers give a negative trend. Now this doesn't mean that the economy can't be producing jobs elsewhere, like temporary jobs, resteraunt jobs, off the books work, etc., etc. but even if the economy is producing jobs like this these are sectors where the average job quality is lower. Also the figure of the average time it takes to find a job is still hovering at near record highs - twenty weeks - despite several months of "jobs creation" according to the national projections to the survey. Finally as noted, cutbacks are both higher than last year this time and higher than planned hiring.

What can we conclude from this? Clearly that the job situation has stabilized but the trend is still mildly negative (even if they are net jobs, they are not in stable good jobs or they'd be showing up more in proportiona to these reports) and that the economy is not "recovering" to robust or even sporadic growth. The GDP figure is mostly bunk and if it's positive at all in real terms it's not strong enough to create jobs in the real world as opposed to the world of statistical and economic fancy.

The conclusion of any serious economic analyst has to be that this economy is still stagnant, dead in the water, and that the churning created by corporate maneuvering or asset speculation or other indicators is just froth. The underlying economy is still going nowhere fast. If Greenspan thinks this is growth, he's smoking something stronger than tobacco.

Also technical analysts should beware. According to monetary supply (even MZM) we should be in a period of positive economic growth. However if corporate profits are growing to absorb most of it, the primary worry there is not that labor isn't getting it's fair share but this may be a dangerous sign of a speculative asset inflation bubble. Same thing with the housing market. This also indicates that inflation is probably higher than the CPI and even perhaps my previous estimates. What is real inflation? Some of it is going into the speculative bubble, and others into increasing mainstream economy prices. It's getting spread around between the two. I'd suggest real world inflation at least of 5-6% and the rest inflating the financial and housing asset markets.

If this analysis is correct then Greenspan has completely failed to bring the economy back, though the sloppy monetary policy may have (temporarily) stabilized things - right before the bubbles pop and the economy surges back down as he raises interest rates. It really is possible through a diminishing returns curve (even setting inflation inside) to lower interest rates too much, and through diverting money into asset speculation keep it from being invested in long term income producing assets (and therefore creating less jobs ironically than one would have if one had not lowered them quite as much).

But hey who listens to the oldman? Certainly not the Central Bank!


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