Yes, everything is wonderful, stocks have been rallying, and the pitter patter of people going back to work is supposedly to be demonstrated in Friday’s US non-farm payroll figures.
Reuters puts the consensus figure at a loss of 320,000 jobs in July, which would be a big improvement on the 467,000 figure observed in June. So the presumption is that the worst is over, mostly because deceleration in the pace of job losses must mean things are getting better. Goldman Sachs is so bullish, in fact, they improved their forecast on Thursday to job losses of 250,000 versus a previous estimate of 300,000.
But not all would agree. Among them is Charles Biderman, CEO of investment research firm Trimtabs. He is predicting a figure of 488,000 job losses in July alongside an alarming escalation in the number of job losses revised for in the first half of 2009.
As his press release states (our emphasis):
Sausalito, CA — August 5, 2009 — TrimTabs Investment Research estimates that the U.S. economy lost 488,000 jobs in July, considerably more than the consensus estimate of a loss of 305,000 jobs. In addition, TrimTabs expects the Bureau of Labor Statistics to revise its job loss estimates sharply higher for the first half of 2009 based on the latest unemployment insurance survey results.
“While Wall Street is convinced the recession is over, the economy continues to shed jobs at an alarming rate,” said Charles Biderman, CEO of TrimTabs. TrimTabs’ employment estimates are based on analysis of daily income tax deposits to the U.S. Treasury from all salaried U.S. employees.
And the thing is it appears that Biderman does have history on his side. The Bureau of Labor Statistics’ preliminary results — which are based on a methodology, not actual income receipts — are decisively revised when actual payroll numbers are accounted for about a year after. As Biderman points out here, though, by that time the benchmarked results are no longer relevant to current macroeconomic conditions and don’t get the media face-time they might deserve. According to Biderman:
Historically, TrimTabs’ employment estimates have been more accurate than those of the BLS. As job losses have continued at a rapid clip, declines in wages and salaries have accelerated. According to TrimTabs’ tax data, wages and salaries fell 5.9% year-over-year in July, worse than the decline of 5.1% year-over-year in the second quarter.
“The personal income report the Bureau of Economic Analysis released Tuesday contained huge downward revisions to wage and salary growth,” said Biderman. “Now that the BEA is using unemployment insurance reports from the first quarter to estimate current wage and salary growth, its data confirms what we have been reporting for months.”
The BEA’s estimates of wages and salary growth changed from year-over-year declines of 0.8% in April and 1.1% in May to year-over-year declines of 4.0% in April and 4.2% in May. Also, the BEA reported that wages and salaries dropped even more sharply in June, falling 4.7% year-over-year. “Two months ago, we asked BEA economists how they reconciled the huge declines in real-time tax deposits with their report of a modest decline in wages and salaries,” said Biderman. “They could not answer our question. We know now that by ignoring real-time data, the BEA was providing an inaccurate view of the economy’s health.”
Here follows a comparison between Trimtab’s numbers, BLS prelims and the final revised figures a year later, demonstrating quite clearly the significant margin of error that exists:
So what prompts the inaccuracy? Well, according to Biderman it’s down to five major shortcomings in the way the BLS compiles its statistics:
1. Changes in employment in the service sector are not fully captured.
2. Heavy seasonal adjustments often obscure trends in employment.
3. Employment growth at smaller companies and growth in self-employment are not fully captured.
4. The company “birth/death” adjustments are nothing more than educated guesses.
5. Only 60% of the survey for the latest month is complete.
Although it wasn’t convincing enough of a case for CNBC’s uber-bullish panel of Michelle Caruso Cabrera and contributors Ron Insana and John Herman on Thursday — leading a somewhat frustrated Biderman to opine he felt like a “one-eyed man in the land of the blind.”
Related links:
Goldman pares forecast for U.S. July payrolls loss – Reuters
Why the Bureau of Labor Statistics Employment Numbers are Wrong Every Time – Trimtabs.