Sunday, July 08, 2012

Next Month's Employment Report Expected To Be Worse

The birth-death model appears to be a fairly good approximation of actual jobs being added, but according to BLS the data varies dramatically on a month to month basis. Some months the b-d model adds a lot of jobs and some months it adds few or is negative. So which months tend to add jobs? 

From the BLS FAQ on the birth-death model:
Months with generally strong seasonal increases such as April, May and June generally have a relatively large positive factor.

The b-d model is adjusted slightly each year, but if we look at last year's chart we find that birth-death added an estimated 141,000 jobs in June and just 5,000 in July, for a drop of 136,000 month-to-month. I contacted James Pethokoukis at AEI to get his take on the significance of the birth-death estimates. He was kind enough to provide this response:
As you can tell, there is plenty of art in these estimates as well as science. And when job growth is this slight, these external adjustments can overwhelm the base numbers. Given the weakening in manufacturing, we could get a worse base number in July than June, which means that when you add in a less robust b-d model, the job gains could be slight to negative. Of course, if jobs are ramping back up to 150,000 or so -- as the ADP forecast could be interpreted as suggesting, then we would still be positive.
Unless there is a sizable bump in the base numbers, we'll be looking at lower or negative job growth next month.

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