Best to low-ball today's employment report

jobsoctober.jpgThe addition of 204,000 payroll jobs last month was a nice surprise and will no doubt get lots of attention by the general media. But it's only a single month, and today's figure will be subject to several revisions, including an adjustment of the entire year's data, known as benchmarking. (Data from the two previous months were revised significantly.) More to the point, as Bloomberg columnist Barry Ritholtz reminds us, month-to-month statistics are not the best way to gauge how the economy is doing. He calls the government's employment report "the single most over-hyped, over-analyzed, over-emphasized, least-understood economic releases known to mankind."

Each month, approximately 4 million people leave their jobs, Retirement, layoffs, career changes, whatever. Another 4 million people start new jobs: recent graduates, re-entries to the work force, job changers. What the monthly Employment Situation report measures -- in near real time -- is the net changes between those two numbers. Take the total net number of new hires, subtract the job losses, and you get the marginal change in employment. Since we begin with such a huge number -- 150 million-plus -- and the monthly net changes are so small (50-200k), the overall change is not especially statistically significant. The net changes amount to about one twentieth and one quarter of a percent. During the height of the financial crisis in 2008-09, the net change was about half a percent (-700k). Thus, any single 0.1 percent data point needs to be recognized for what it is. It is but one data point in a longer series. And not an especially accurate one initially.

The Washington Post's Brad Plumer has a good explainer on why the labor force keeps shrinking - and why much of it has little to do with how well or poorly the economy is now performing:

Baby boomers are starting to retire en masse, which means that there are fewer eligible American workers. Demographics have always played a big role in the rise and fall of the labor force. Between 1960 and 2000, the labor force in the United States surged from 59 percent to a peak of 67.3 percent. That was largely due to the fact that more women were entering the labor force while improvements in health and information technology allowed Americans to work more years. But since 2000, the labor force rate has been declining steadily as the baby-boom generation has been retiring. Because of this, the Federal Reserve Bank of Chicago expects the labor force participation rate to be lower in 2020 than it is today, regardless of how well the economy does.

More by Mark Lacter:
American-US Air settlement with DOJ includes small tweak at LAX
Socal housing market going nowhere fast
Amazon keeps pushing for faster L.A. delivery
Another rugged quarter for Tribune Co. papers
How does Stanford compete with the big boys?
Those awful infographics that promise to explain and only distort
Best to low-ball today's employment report
Further fallout from airport shootings
Crazy opening for Twitter*
Should Twitter be valued at $18 billion?
Recent Economy stories:
Those awful infographics that promise to explain and only distort
Best to low-ball today's employment report
Exit interview with Port of L.A.'s executive director
L.A. developers relying on foreign investors bend a few rules
Holiday shopping: On your marks, get set... spend!

New at LA Observed
On the Media Page
Go to Media

On the Politics Page
Go to Politics
Arts and culture

Sign up for daily email from LA Observed

Enter your email address:

Delivered by FeedBurner

Mark Lacter
Mark Lacter created the LA Biz Observed blog in 2006. He posted until the day before his death on Nov. 13, 2013.
Mark Lacter, business writer and editor was 59
The multi-talented Mark Lacter
LA Observed on Twitter and Facebook