06 February 2009

A Closer Look at the Revisions to the Non-Farm Payrolls Numbers

"I am a firm believer in the people. If given the truth, they can be depended upon to meet any national crisis. The great point is to bring them the real facts."
--Abraham Lincoln

The 'actual' jobs loss number, before seasonal adjustments are applied, was significantly worse than expected. It was so bad that we had to adjust the lower boundary of the chart by an extra 500,000 jobs lower than the projected chart we showed yesterday. Jobs Number for January Could Be Much Worse than Expected

So why was the 'headline number' after seasonalization relatively benign and better than many had expected, or 'not as bad as feared?' A gas station pricing number that came in at -598,000 just below the psychologically important -600,000? Besides a liberal upgrade from seasonality, the revisions to the prior month, and months as it turns out, were interesting.

Revising job losses from prior months lower 'creates jobs' that can be moved forward on the statistical count. It would be like revising losses in the prior years of your income statement to allow you to show lower losses in the more current periods. Its kind of like shoving job losses around on a plate. Nothing really changes, but the data 'looks better.'

Further, we see the usual "current month - prior month" two-step wherein the current month is shown slightly better than the prior month. Then at the next reporting period, you revise the former current month lower, and show the new current month as slightly better.

We had a business unit direct report who liked to play those kinds of games to show 'better numbers' for their piece of the business. The fix was to lock them into rolling averages for results and not something more short term.

And so it is with the US jobs jockeys. The longer term trend does not lend itself so easily to data manipulation in the revisions and seasonality.

And it shows the economy is in a nose dive. But stocks are rallying today on the expectations that the bad numbers will insure that the Senate will pass the stimulus, and that Turbo Tim will announce a big giveaway for the banks next week.

The Obama Administration is doing nothing new. The Bush Administration's numbers were so hollow that we started calling the US a Potemkin Economy, or perhaps Ponzi Economy because it is built on ever increasingly unredeemable debt. Clinton was no better, merely more effective, more competent, more 'artful.'

This may not be new, but it is not reform either. Meet the new boss, same as the old boss.