Thought-Experiment of the Day
It’s no secret I’m not a fan of the birth-death adjustment to the employment serieses: not from a necessary belief that they’re biased, but rather because they give the lie to the illusion of accurate monthly data.
But imagine for the moment that there had been no adjustment before the January data release. The headline number for January might well have been north of 400,000, making the past three months even more impressive (from a headline perspective only, but still…) in terms of job creation.
Would that change anyone’s opinion of the timing and/or need for tightening? (See also my post earlier today with the graphic borrowed from The Big Picture marking a growth comparison with 2003-2004.)
Very interesting and informative post.
No.
In a conversation with my son last night, he is a smart young fellow, I came to the conclusion the “stagnation” issue is on the demand side.
We decided too much money destruction through paying down debt, worrying about the SS raided to pay for the unproductive wars and failed MMT.
We need to wait for some demand pull inflation, not worry the supply side.
A 50 minute phone conversation between a retired guy and his son.
Taking into account the population adjustment factor the number of jobs created in January was actually 589,000, not 117,000 as reported. In fact the number of employed according to the household survey is up by 1.43 million in the last four months, the most in any four month period since 1994.
From my standpoint the implications of this untold story are the following. Recoveries in the labor market typically show up in the household survey before the payroll. The discretionary fiscal stimulus is being unwound right now at a rapid pace and there were forecasts back in late 2009 that we would be in double dip recession territory right as a consequence. Instead the economy is displaying the first signs of real life this recovery, but this is not really getting fully reported.
What changed? QE2. Monetary stimulus works when it is tried, even in a so called “liquidity trap.” Much time and energy has been wasted on fiscal stimulus when there should have been more effort to pack the FOMC with “doves” while it was still possible.
Now it may be too late. QE2 ends in June and the Republicans will fight renewed monetary stimulus tooth and nail. That’ll be when the double dip kicks in.
The birth-death plug goes in before seasonal adjustment. Since the magnitude of the plug is roughly the same for January each year, and the direction is always the same, seasonal adjustment will correct for most of the plug. The only thing that would show up in the seasonally adjusted figure is the difference between what has happened in recent years and what happened this year, with or without the plug. Since we would be in the habit of taking monthly swings into account for ourselves if the BLS adjustment squad did not do so for us, then if BLS did not provide a plug, we would not have though January a whole lot weaker or stonger than was reported.
The plug misses turns. The plug can be wrong by a lot. The plug can systematically over or under estimate job growth. None of that, however, is evident in the short term, so there is little chance that the median expectation of Fed policy would be different in the absence of the birth/death plug.