A Conversation About Payroll Data That You Never Saw On CNBC

by Bob Bronson, Bronson Capital Markets Research. August 12, 2009

Joereal at CNBC: We’re very pleased today to introduce Constant Pangloss for
his take on today’s payroll data report.

Pangloss: Thank you, Joereal. I’m delighted to be here. Today’s report was just
outstanding! To be factual, July’s loss of jobs was 44% less than June’s jobs loss
and a huge 64% less than the biggest jobs loss in February! This “green shoot” is
proof positive that the recession has nearly, if not already, ended, which is confirmed
by today’s breakout bull market rally to a new intraday high at 1018 for the S&P 500!

Joereal: Did you notice that the 9.4% unemployment rate from the household survey
would have been 9.7% rather than 9.4%, if some 422,000 unemployed people had not
left the labor force during the four weeks prior to the survey, many of them so discouraged
that they did not look for work because they know there are no jobs for them?

Or that the seasonal adjustment of the payroll data artificially created 28,000 jobs
in the auto industry, when, in fact, automakers cut 8,600 jobs, so that the reported
247,000 jobs lost in July were really closer to 285,000 jobs or 15% worse than reported?

Pangloss: I’ll take your word for it, Joreal, but I find that hyper-technical, and in any
case, it doesn’t change the solid uptrend of “green shoots” in the payroll data because
of the current administration’s stimulus and their other constructive interventions.

Joereal: Ok, but we’re putting up on the screen the long term history of the growth in
payrolls since the BLS first started tabulating them during The Great Depression.

Pangloss: Well…OK…I guess the more contextual information the better.

Joereal: Ok, here’s the chart that appeared in Rex Nutting’s article illustrating the record-
breaking descent in the 10-year growth rate in private sector payroll employment since 1939.
http://www.nytimes.com/imagepages/2009/08/07/business/20090808_CHARTS_GRAPHIC.html

Pangloss: No, no, no…that’s way too much data. I prefer the shorter term chart that the rest of the media is presenting. If you simply ignore the fluke in June, just look at this year’s strong uptrend of solid “green shoots!”

Joereal: I see what you have selected, but do you mind if we also consider both the raw
or base employment data, as well as their monthly changes, at least since just before the
recession started?

Pangloss: I guess not.

Joereal: OK. Notice that the cyclicality and the downtrends in both of the following datasets,
suggest job losses in the coming months may be worse.

Pangloss: What? I’m just going to ignore the so-called perfect polynomial fit in the
first chart. In the second chart, I believe that the linear downtrend is irrelevant, and
the cyclical extrapolations are obviously too influenced by both the longer term data
since the recession began and by the recent June fluke in the data.

Joereal: Well, here’s a two-month average of just this year’s data, and a curvilinear best-fit of the data suggests the same outcome of lower payroll data coming in the months ahead….

Joereal: …and there’s another consideration. As you can easily extrapolate visually from the downtrend in the last three years of data and from the curvilinear best fit of all eight years of data in the following table prepared by the BLS, their annual payroll benchmark revisions to be reported in early October for the 12 months of employment data through March 2009 (which was the worst part of the banking crisis), along with the regular monthly report of September (2009) data, will likely show a downward change of a whopping 2,000,000 jobs, if not more, similar to the 2,000,000 downward revisions reported in October 2002 as a result of the last recession. A huge, downward revision in payroll jobs expected in the report this October is all the more likely because the BLS data are only sample-based estimates and do not include any business cycle considerations, and because the current recession is much more severe than the last one.

http://www.bls.gov/opub/ils/pdf/opbils70.pdf

Joereal: ….Surely you’ll agree that this will raise questions about the “green shoot”
proof that the recession has ended, or nearly ended, right?

Pangloss: This is all hyper-technical and I don’t respond to hypothetical questions.

© 2009 Bob Bronson

Contact Information

Bob Bronson | Bronson Capital Markets Research | Email