Friday morning at 8:30am, investors will know just how bad the employment situation in the US really is. The consensus among analysts is for 92,000 new jobs to be added to the economy; some estimates are higher than 100k, others are down around 60k.
After reading countless articles, watching hours of CNBC, Fox and Bloomberg this past week I noticed some extreme variations in opinion. Of course, there is an average number which “smoothes” these varying opinions. Investors will then evaluate the results in relation to that average as either bullish or bearish.
But who REALLY knows how many jobs are actually added or lost? Why are there such big discrepancies between analysts? Perhaps it’s the fact that different market analysts use non-standard sources as opposed to following the herd’s rationale?
Having been a financial professional for almost 18 years, I have come to realize that a variation of 40,000 jobs in a report (which is almost a 50% deviation from the expected number) really doesn’t matter much at all.
Take it with a grain of salt
I am far from an extremist and I consider myself extremely rational, so I hope you know these facts are coming from a source without a political, social or monetary axe to grind, I just want the complete truth (“complete” obviously being the operative word). I’m sure many of you agree that statistics are flawed or biased.
But some like the BLS report are pivotal and perhaps one of the more critical being that the world puts their “stock” in a difference of just a couple thousand jobs either way.
Some argue that the report is flawed, but it is consistent and effective because we measure it against its history. But did you ever think about the fact that business changes, technology changes, commerce evolves and perhaps the methods being used are NOT capturing the real story?
FACTS
Small Business Flaws:
Did you know that ¾ of ALL the businesses in the U.S. have NO payroll (employees other than owners/sole proprietors)? According to the US census bureau; self-employed or small businesses with NO payroll are NOT included in most business statistics; perhaps because they only account for less than 4% of business tax receipts or about $962,791,527,000 in revenue (2007 consensus).
I know that may seem like relative chump change and perhaps a good percentage of these companies are shells, but for the 27,281,452 (as of 2008) companies out there not being counted, don’t you think we may be ignoring some of the most important seeds of our economy?
These “non-employers” include doctors, dentists, electricians, graphics artists, programmers, artists, landscapers, etc. Apple, which was founded by two friends in their garage would be listed under this definition.
BLS Participation Rate:
The biggest lie in the BLS employment report is the “participation rate” which is at about 63% is NOT the amount of employed people compared to the total population (that number is 58.6%).
The participation Rate, which has been on the decline since the 1980s is the number of people that are NOT counted as unemployed persons, even though they most likely are. As of May 2012, there were almost 88 million people in this category.
On top of those 88 million people, the number of “officially unemployed people” according to the BLS was 2.7 million in May.
Also in May, 2.4 million persons were marginally attached to the labor force, which means they are NOT counted as unemployed (even though they are) because they gave up looking for work for more than 4 weeks.
I’m not good with numbers, but that is roughly 93 million people NOT employed, that’s not counting babies, kids and retirees.
Obviously that’s a huge number, but to make it less severe, they have this participation rate that allows them to basically manipulate the numbers and make the situation look much better than it is.
The folks over at zero-hedge ran some numbers back in January and they noted that:
“It won’t surprise anyone that as of December [2011], the real implied unemployment rate was 11.4% – basically where it has been ever since 2009 – and at 2.9% delta to reported, it represents the widest divergence to reported data since the early 1980s.
[If you use the BLS’s math] and extend this[participation rate] lunacy, America will officially have NO unemployed when the Labor Force Participation rate hits 58.5%, which should be just before the presidential election.”
I think there is more than a 3% deviation in the BLS’s numbers and frankly when we are talking about 93 million people who are not employed compared to a total of 155 million people in the workforce in total and only 531,000 jobs added in all of 2012, does even 100,000 jobs + or – matter?
Question Everything
The point of all this is that we must question the facts themselves. It’s not that the data is necessarily wrong, but the means at which it is gathered along with the way it is computed may not only surprise you, but change your opinion completely.
My goal is to exposure the flaws in many indexes and statistics and show you how to find the REAL data behind the headlines. Through my books, blog and trading services I spend a great deal of time dissecting popular opinion and process to look for “hidden opportunity.”
As for the BLS report this Friday, we are dammed if we actually get a favorable report. Strong jobs growth means less chance of QE, which could cause some selling. I don’t think the number will be strong at all; looking for 77k approx.
I think all of us would agree that we would rather be employed than have banks get more cheap money, which little has trickled down to us.