Making Up Jobs

by Floyd Norris, NYT - Nov 2, 2007

Today’s employment report is mediocre at best. But to understand that, you have to look past the headline numbers.

Those numbers say that the government’s survey of employers showed a gain of 130,000 private sector jobs, on a seasonally adjusted basis, in October. That seems to be better than in recent months.

I don’t believe it. Most of those jobs — 103,000 of them, before seasonal adjustment — were added by the statisticians, not reported by employers. (It should be noted that, before seasonal adjustment, there were 201,000 jobs added, so this is just more than half.)
Why add jobs? It is an effort to include jobs created by new companies not surveyed, less an estimate for jobs lost at companies that went out of business and therefore did not respond to the survey.

Of those 103,000 jobs, 14,000 were in the construction industry, and 25,000 were in finance. Does anyone believe that all those new companies are being created in those industries now? (You can see the government’s explanation for this here.)

At times of inflection, these adjustments can be wildly off, as I argued a month ago. I think we hit such a point this spring. A couple of years from now, after all the adjustments are made, this year’s job performance will look far less impressive.

Over the last 12 months, the government’s current numbers indicate that the private sector added an average of 115,000 jobs a month. But 80 percent of those jobs came from the statistical adjustments.

It is also worth noting that the govertment’s other survey, of households, has not found those jobs. Over the last 12 months, it has found about 50,000 new jobs a month. In October, it found employment declined by 250,000 jobs.

A few years ago, the survey of employers was showing what turned out to be unreasonably low job numbers. (They have since been revised upward, and those revisions influenced the current rose-tinted adjustments.) Then the household survey sounded the warning that things were not as bad as the survey of employers seemed to indicate. Now it is warning that the job picture is not as good as it appears at first glance.