The December Non-Farm Payrolls Report: Portrait of a Ponzi Economy

The 'headline number' is the seasonally adjusted net change in jobs. The drop out of the range that was held in the prior years is obvious on this chart.



This is the (in)famous Birth Death Model from the Bureau of Labor Statistics in which they add jobs as a 'plug' to account for new jobs being generated by the economy from smaller business. The trend is very regular as can be seen on this chart. So regular in fact that it is exposed as imaginary, useless. They do not even bother to trend it with the overall economy and jobs market. The only good thing that can be said about it is that it is added to the non-adjusted jobs number first, so its effects are swallowed up by the seasonal adjustment in many months.



This chart shows the drop off in jobs growth was precipitous. We believe that it was much less precipitous ex government fudging. The recessionary decline was masked by the government. Well, its obvious now.



It always good to remind ourselves of the huge swings in jobs numbers before the seasonal adjustments. It is those adjustments, and the huge revisions made to the series both in the prior month and in whole sections of the numbers, that hide a multitude of statistical sins.



This chart shows the peak in the economy, and the beginning of the decline. As one can see it was not the sudden onset of the housing collapse that brought down the economy. Rather, it was the rot underneath the foundations of the economy that triggered the housing collapse, and all the other Ponzi schemes that are now collapsing.

Fixing the 'housing problem' will not fix the rot in the economy, which was papered over by the Fed's reflation starting in 2003. But there is a lot of money to be made by a lot of people in that fix, so we can expect a signficant amount of graft and waste before the real work begins.



Here is another view of the Jobs Trend that nicely demonstrates the rise off the bottom of the economy as a result ofthe Fed reflationary efforts, first under Greenspan and then Bernanke. It was a parabolic bubble which has now collapsed and is declining in a nicely defined parabola. That's a sixth order polynomial describing the trend.

Obama Uses the "S" Word

In a televised interview with House Speaker Nancy Pelosi, president-elect Obama stressed the need to quickly craft an economic recovery plan because "the employment report at the end of this week will be sobering."

The plan to be considered by the new Congress, which will be sworn in tomorrow, is expected to include middle class and small business tax cuts.

A small group of Republicans will continue to oppose any aid not directed at wealthy individuals and large corporations in a histrionic show of newly-discovered indignant fiscal responsibility.

The resultant plan will be a band-aid on a gaping wound. The work of substance is yet to be seen.

The Non-Farm Payrolls November Boogie Woogie

It has become popular of late to pay attention to the Birth Death Model from the Bureau of Labor Statistics. Also known as the imaginary jobs number, it is the plug which BLS uses to account for jobs created by new businesses that are not captured by the normal reporting system. There is a method to this madness, but we'll leave that for another day. The good news is that the number has become fairly predictable, as shown by our first chart, which tracks the numbers over the past four years. This month the number willl be a manageable 20,000 jobs added, or so. This is a smallish number, and since it falls in a month where a huge number of jobs are added and seasonally adjusted lower, and since the number is added BEFORE the seasonal adjustment, we can safely ignore it.

(By the way you can click on the charts if you wish to read them, or just for fun if you don't care about details as you are on a managerial or government career path.)

The second chart is a comparison of the actual net jobs in red, and the seasonally-adjusted or headline number in blue. Please note that there may be a HUGE difference between the two. This itself is not surprising because employment is subject to significant seasonal variations, especially in some employment positions. The BLS statisticians use seasonal adjustment formulas to take the raw number as reported to them by industry, and develop the adjusted, headline number to which Wall Street overreacts. These numbers are further adjusted and revised, sometimes signficantly, a year or more after the original headline, although the first three months see the largest adjustments. The latest BLS trick seems to be to come in with an outlier number in the current month, but adjust the prior months higher or lower. Its a statistics thing. Statisticians can make accountants look intractable when it comes to pleasing the boss, especially with this kind of revisionist latitude.

Yes, you say, but what's your CALL there partner? Because we all don't care what's happening, we just want the over under, the hook, the net-net, y'know what we mean?

Having had some experience with trending large, seasonally variable data in private industry, and often having to look behind the forecasts in order to do the hairy knuckle work of providing capacity, we would like to stress that the punchline from the above is that acting on a single month's data is pretty much reckless and irresponsible, and only encouraged by marketing types, including those that work for government and Wall Street. The headline November Jobs number can easily be justified at 200,000 jobs added, with no help whatsoever from the Birth Death model, simply because the huge latitude in the seasonal adjustment, and the sloppiness of the current month data. On the other hand, (economic codeword for shit happens) that's bush league data massaging. A much more elegant approach would be to come in with the current number of about 90,000, but to adjust the prior month number higher. This is called planning ahead for the next time around. No one cares after two months anyway. Stock speculators have the memory span of a goldfish, which is why they never seems to be bored as they swirl around the bowl.

As all practical people understand, the real story is in the trend. Its the averaged trend that provides the most realistic picture, and helps you decide whether to spend your time polishing that provisioning plan, or to start polishing that resume and making calls to executive search firms. In this case, this chart of the Twelve Month Moving Average is the money chart, and the message is clear as crystal. The economy is in a slump, not a recovery, and the jobs trend is not only not good, technically its pretty damn scary (time to polish up the resume and get 'er done in private industry, which seems to be a trend in the Bush Administration). We won't bother with a forecast for the unemployment statistic, the percent of motivated workers actively seeking jobs, because its a slightly different set of useless data in which the unemployed workers get ghosted after they become inconvenient for reporting purposes.

A good analogy here is when tech companies write down inventories, or take reserves from current sales. You just know the respective realities are going to get resurrected on some future income statement and beat-by-a-penny earnings release. At some point the US is going to have hell to pay for how we have run this business called our country, but the goal is to set that day well into the future, at least until after the next election.

P.S. Kudos to Hank and his crew for the finely executed rally-for-no-reason today. It made our confidence swell like Bill Clinton's willy at a Girl Scout convention. The spokesmodels on the Orwell Channel got the message that Wall Street Likes the Hope Now Pay Later Mortgage Plan. On a happier note, there is a consensus among those that have actually examined the plan that it does less than a presidential visit to New Orleans during the Hurricane Katrina aftermath, thanking the Lord for small favours received.