U.S. nonfarm payrolls up 274,000

[HenryTo]

Jobs gain of 274k (headline number) beat expectations substantially. Marketwatch expected 194k, most expected 175k, and whisper numbers were for 100k. Bonds sold off substantially after the release of this report.
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U.S. nonfarm payrolls up 274,000
Average workweek climbs to 4-year high

By Rex Nutting, MarketWatch
Last Update: 8:48 AM ET May 6, 2005


WASHINGTON (MarketWatch) - The labor market strengthened in April, as the U.S. economy gained a larger-than-expected 274,000 jobs, the Labor Department reported Friday.

The unemployment rate remained at 5.2%, while average hourly wages rose by 5 cents to $16, or 0.3%. Hourly wages are up 2.7% in the past year.

The average workweek increased by two-tenths of an hour to 33.9 hours, the highest since July 2001. Total hours worked in the economy increased by 0.9%. Read the full report.

The report was much stronger than anticipated on Wall Street. Economists surveyed by MarketWatch were looking for payroll gains of about 194,000. See Economic Calendar. Other surveys were looking for around 175,000 jobs, and so-called whisper numbers that circulate on trading floors were rumoring numbers closer to 100,000.

The strong payroll figures should dispel some of the fears that the U.S. economy has flattened as spring arrived.

Stock futures jumped following the report. Bonds sold off, pushing the 10-year yield up to 4.23% from 4.17%. See Indications.

Economic growth did slow in the first quarter to 3.1%, close to the long term trend. Other early data for April have been mixed, with tepid chain-store sales, stronger auto sales and solid manufacturing sentiment numbers.

On Tuesday, the central bank's Federal Open Market Committee raised its short-term borrowing rate by a quarter percentage point to 3%, citing good prospects for the U.S. economy, contained inflationary expectations and a labor market that was "gradually" improving. See full story.

March payrolls were revised higher to 146,000 from 110,000 previously. In all, payrolls were revised up by 93,000 in February and March. Payrolls increased by 300,000 in February.

Payroll employment totaled 133.3 million in April.

Job growth was widespread through the economy, according to a survey of some 400,000 business establishments. In April, 61.3% of 278 industries were adding to payrolls. Over the past 12 months, 65.1% of industries have been hiring.

Goods-producing industries added 45,000 jobs, with 47,000 in construction. Manufacturing lost 6,000, the ninth decline in the past 12 months.

Among 84 manufacturing industries, 50% were hiring in April. The factory workweek increased by a tenth of an hour to 40.5 hours. Overtime was unchanged at 4.5 hours.

Service-producing industries added 229,000 jobs. Leisure and hospitality industries added 58,000, most in food services. Retail added 24,000.

Health and education services continued strong hiring, adding 35,000. Professional and business services added 36,000, including 10,500 temporary-help workers, who can work in any industry, from manufacturing to mortgage banking.

In a separate survey of 60,000 households, the Labor Department found that employment increased by 598,000, while unemployment rose by 7,000 and 400,000 dropped out of the work force.

Employment totaled 141.1 million, while unemployment totaled 7.67 million.

For the 31st month in a row, more than 20% of the unemployed had been out of work longer than six months.

Rex Nutting is Washington bureau chief of MarketWatch.

[HenryTo]

victor,

Here is what Trimtabs has to say regarding the BLS job numbers. Trimtabs's bottom line: Ignore the BLS data because they are underreporting job growth - which is different to the consensus since most analysts out there are saying that the BLS overstates job growth. This is also along the line of Peter's view. As for me, I like to be a contrarian - I also know that BLS's numbers are just a guess so I will most likely go for Trimtabs view.

Here it is:

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LAST MONTH WE SENT YOU A PIECE CONCERNING OUR VIEW OF EMPLOYMENT - HERE IS AN IMPORTANT FOLLOW-UP

Employment Growth is Healthy Year-to-Date: Why the BLS Consistently Gets It Wrong Month after Month

Blame Seasonal Adjustments, Large Institution Bias and Birth/Death Adjustments.

Santa Rosa - May 9, 2005 - Rarely do we rant. Yet the results of the U.S. Bureau of Labor Statistics (BLS) establishment survey have been so wrong since the beginning of this year that not to rant would be an egregious disservice to our clients. This past Friday, the BLS indirectly admitted it has been underreporting job growth so far this year. It estimated that the U.S. economy added a healthy 274,000 nonfarm payroll jobs in April, and it boosted its estimates of employment growth in February and March by a combined 93,000 jobs. Over the past three month, the BLS currently estimates that employment growth has averaged 240,000 jobs. The BLS results were decent in part because seasonal adjustments are extremely low in April.

While the BLS results were decent in April, we still believe the BLS has significantly underreported job growth so far this year. We suspect job growth has averaged about 300,000 jobs per month for the following reasons:

o Based on our analysis of daily income tax withholdings, wage and salary growth has been remarkably strong since November 2004 averaging about 7.2% year-over-year, well above the 5% level indicative of moderate economic growth.

o The TrimTabs Online Job Postings Index has jumped 24% since the beginning of this year.

o Weekly unemployment claims have been averaged about 335,000 claims since the beginning of this year, which is well below the 350,000 claim level consistent with solid employment growth.

o Demand for temporary employees is robust has been averaging new employees every month since the beginning of the year.

o Growth in total savings has averaged year-over-year since last August 2004 which is quite is healthy.

o Demand for commercial and industrial loans continues to increase at a steady pace, which suggests growth at small and medium-sized corporations is accelerating.

The BLS has been underreporting job growth since January for three main reasons. First, the BLS applies massive seasonal adjustments to its employment data from January through March, which makes it difficult to calculate employment growth accurately. Second, the respondents to the BLS establishment survey are generally large corporations and large public institutions. All corporations employing at least 1,000 people eligible for unemployment benefits are eligible for the survey. Corporations employing less than 1,000 people eligible for unemployment benefits are rarely counted. Based on our analysis of income tax withholdings, online job demand, and growth in commercial and industrial loans, we believe most job growth is occurring at small and medium-sized corporations rather than large corporations. Third, the BLS uses “birth/death adjustments” to account for jobs created by new businesses and jobs lost by closings of existing businesses. The BLS explains these “birth/death adjustments” on its web site (http://www.bls.gov/news.release/empsit.tn.htm):


"Another major source of nonsampling error in the establishment survey is the inability to capture, on a timely basis, employment generated by new firms. To correct for this systematic underestimation of employment growth, an estimation procedure with two components is used to account for business births. The first component uses business deaths to impute employment for business births. This is incorporated into the sample-based link relative estimate procedure by simply not reflecting sample units going out of business, but imputing to them the same trend as the other firms in the sample. The second component is an ARIMA time series model designed to estimate the residual net birth/death employment not accounted for by the imputation. The historical time series used to create and test the ARIMA model was derived from the unemployment insurance universe micro-level database, and reflects the actual residual net of births and deaths over the past five years."

According to a reliable government source familiar with BLS methodologies, the BLS estimate of business deaths is based on data that is at least one year old and sometimes two years old. This source also indicated that this estimate is nothing more than an educated guess.

Bottom Line: Ignore the BLS!

We recommend that you ignore the BLS employment results, which will continue to understate employment growth due to the BLS establishment survey’s inherent bias toward large employers. As long as the price of crude oil remains in the $45 to $50 per barrel range, economic growth should remain solid over the next few months. Public companies are sitting on vast cash hoards, and consumers continue spending freely. While mergers and acquisitions at large companies will limit employment growth, employment growth appears to be continuing at a brisk pace at small and medium-sized corporations. A more reliable gauge of current employment trends comes from analysis of income tax withholdings, online job demand, temporary employment, and commercial and industrial loan demand. These indicators all point to healthy employment growth across most sectors of the U.S. economy.

This Month’s Summary

*Employment - The U.S. Bureau of Labor Statistics (BLS) has confirmed what TrimTabs has known for five months: employment growth is healthy. The BLS announced this past Friday that the U.S. economy added 274,000 jobs in April. Coincidentally, seasonal adjustments in April were near zero. In addition, the BLS revised its estimates for February and March higher by a combined 93,000 jobs. Job growth has averaged 240,000 jobs per month over the past three months.

*Online Jobs Index - The TrimTabs Online Job Postings Index rose 0.17 points, or 0.25%, to 69.62 during this past week. This indicator has jumped 24% since the beginning of this year and has been posting moderate gains since the beginning of March, which suggests employment demand is solid.

*Monster Employment Index - The Monster Employment Index rose 1 point to 131 in April. Online job demand increased in twenty of the twenty-three Monster industry sectors, led by the agriculture, entertainment, and construction industries.

*Temporary Employment - Demand for temporary workers rose by 68,000 workers, or 2.8%, to 2,464,600 workers in April. Demand for temporary workers continues to rise at a healthy pace, which suggests employment growth is solid.

*Announced Layoffs - Announced layoffs fell by 28,530 layoffs, or 33%, to 57,870 layoffs in April. Extraordinarily strong merger and acquisition activity was responsible for keeping this indicator higher than normal from September 2004 through February 2005. Declines in announced layoffs over the past two months suggest large corporations are experiencing healthy growth.

*Unemployment - The total number of unemployed persons was nearly unchanged, rising by a statistically insignificant 7,000 persons to 7.66 million persons in April. The unemployment rate held steady at 5.2%.

*Weekly Unemployment Claims - Weekly unemployment claims rose by 11,000 claims to 333,000 claims from last week’s adjusted 322,000 claims. Despite last week’s gain, the four-week moving average fell by 2,000 claims to 321,500 claims, which is consistent with a solid labor market.

[victor]

Anyone surprised by the latest job figure?

Time to remember what I posted one month ago: "So, expect healthy employment numbers for the following months (April, May and June) and beware of July data."

http://www.marketthoughts.com/forum/viewtopic.php?t=274

Is it reality or just a number's game?

Best regards

[Gizmo]

Is the Economy Growing at 6%?
in Economy
Final thoughts on the April NFP report, via Barron's Alan Abelson. He cites Merrill Lynch economist Daid Rosenberg, who like us, feels that "strange things are afoot at the Circle-K:"


"Alas, we came across David Rosenberg's take on April jobs, and it was pretty gloomy. Right off the bat, David, who's Merrill Lynch's top economist, casts doubt on the seemingly glowing numbers, which were, as it happens, much higher than the Street was forecasting (there's always a first for everything).

"Do you believe the economy is growing at a 6% annual rate right now?" he asks rhetorically. "Because if you don't, in my view, there is no way you can believe the strength in today's nonfarm payroll report."

April's jobs data, he feels, "vastly overstated economic conditions last month." The gains that supposedly occurred in retail, construction and telecom just don't square with what has been happening in those sectors. He notes that the economy is undergoing a classic inventory correction and the trend in the leading economic indicator is down.

All of which means, he contends, job additions in the months ahead closer to 130,000 than 170,000. Dementia, shmentia, we'll just have to postpone being bullish."

I am trying not to be guilty of my own biases in selective perception and interpretation. Still Rosenberg's take is very consistent with my own. Food for thought.

>



Source:
Up and Down Wall Street: Car Crazy
Alan Abelson
Barron's Monday, May 9, 2005
http://online.barrons.com/article/SB111542268857427309.html
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Gizmo

[Gizmo]

But out of today's headline NFP data, out of those 274k jobs, there was a +257k "Birth/Death" adjustment. Quoted from......

http://bigpicture.typepad.com/comments/economy/index.html


Beware of Hedonic Adjustments to NFP!
in Economy
I was as taken aback by today's Non-Farm Payroll number as anyone. But I was curious as to this huge number could be such a surprising outlier, given all the wekaness we have been seeing.

Then, I dug beneath the headlines a bit, and discovered this small little hedonic adjustment to the NFP data: The CES Net Birth/Death Model.

BLS notes " There is an unavoidable lag between an establishment opening for business and its appearing on the sample frame and being available for sampling. Because new firm births generate a portion of employment growth each month, non-sampling methods must be used to estimate this growth." In other words, they estimate the number of jobs created by new firms which the BLS has yet to sample.

Now, I have no idea how accurate or reliable this adjsutment actually is. But out of today's headline NFP data, out of those 274k jobs, there was a +257k "Birth/Death" adjustment. Of the reported data, 93.8% of the gains have been hedonically adjusted. Note that this is a relatively new process, first introduced in 2000.

I did take the Under, so perhaps I am just "talking my bet." But if anyone can explain this mnore thoroughly to me, I'd greatly appreciate it . . .
_________________
Gizmo

[HenryTo]

Thank you Peter, for the insight!

Looks like the long bond should sell off further here - and the inverted yield curve that a lot of bears have been looking for may be further away than anyone thinks. Peter, did you actively invest during the late 1960s/early 1970s period?

Not sure whether you find the current period comparable (what's your view on whether this is a secular bear, by the way) but it is interesting to note that both the 1967 to 1968 and May 1970 to 1972 cyclical bull markets did not end until the difference between the yield of the 30-year bonds and the Fed Funds rate was right at zero. We are still currently pretty far away from that although one should start being careful as the Fed Funds rate approach 3.5% and beyond (which would be higher than the headline inflation rate but which should benefit the U.S. dollar, IMHO).

Best Regards,

Henry

[pete richardson]

Henry --

Years ago, Greenspan remarked that he liked the payroll employment data. It is documented data, but large sections of the entire can be two
to three months behind, as HR chiefs do not drop everything they are doing to fill out the surveys. Thr household surveydata is more current and leads the payroll data by up to several months. Clever of Al. He and his guys study the current data and have directed the bond market to study the more dated reports. Civilian employment (household survey) has accelerated to 2.5 million new jobs over the past year. This acceleration will be picked up in the payrolldata in the months ahead. In turn, growth of personal income will also accelerate, and this lays the groundwork for continued expansion.

Best,

Peter

[HenryTo]

Does someone have the time to go in and do a little more analysis on the headline number of 275k? For example, how much did seasonal adjustments and other adjustments play a role in this number? On the other side of the coin, other investors have always stated that the jobs report always understate job growth when the economy is growing, since small companies tend to hire proportionally more people - and they are not usually taken into account in the jobs report.