New Jobs Report Numbers Don’t Reflect Real Growth

Despite the better than expected non-farm payroll reported, many are skeptical of the 255,000 “created” jobs the Bureau of Labor Statistics (BLS) reported last Friday. In a CNBC interview, Dennis Gartman, Founder, Editor and Publisher of The Gartman Letter, expressed some doubt on how well these reports gauge the health of a growing US economy.

We have to remember however that there were two things that I think need to be discussed. One is that a great good deal of this increase was because of the birth/death adjustment as they call it, which added about 85,000 payroll jobs to the number.”

Gartman’s referring to the “birth/death” not of individual workers, but of businesses.  According to the BLS, there’s an unavoidable lag between a business opening for the first time (i.e. being “born”) or one closing (i.e. “dying”) and its appearance and disappearance on the sample. The birth/death adjustment is rather subjective and erroneous.

Other factors, like errors in unemployed self-reporting and full-to-part-time moves can also distort the non-farm payroll report. Gartman used Canada as an example of what’s happening to jobs reports here in the US:

The interior numbers in Canada showed that a large number of part-time jobs increased and the number of full-time jobs were decreased. Plus the fact that there was a huge increase in the number of people calling themselves ‘self-employed,’ which I take to be an indication that a number of people were laid off and were too proud call themselves ‘laid off’ and, in fact, called themselves ‘self-employed.’ So across all of North America including Canada and the United States together, the employment number was  demonstrably less strong than it first appeared.”

Gartman’s comments echo Peter’s Schiff’s thoughts on the so-called “strong” jobs report:

Overall, everybody was looking at this jobs report as if it was strong across the board and indicative of a healthy economy. Once again, rather than reflecting a strong economy, all these jobs numbers do is reflect a transformation of the economy from full-time to part-time work. Remember the jobs numbers do not differentiate between full-time and part-time work. So when you’re just measuring the number of jobs and not looking at the quality or the number of hours worked per job, you get a distorted view of the true strength of the labor force.”

Across the board, similar government numbers like the GDP and CPI are consistently revised, so relying on these models for estimating the strength of the economy can be a guess at best.

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