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  Jack Gallagher - 12 years ago

  Amazing. Until today's ADP number, everyone was singing with one voice with resepect to the governement's "establishment survey" number for tomorrow at 150,000. Now, even hotair readers are drinking the "lower the expectations" kool-aid, ratcheting down their guess for tomorrow's number - leading to the inevitable result, as Ed Morrissey likes to say, that when tomorrow's number comes in above 100,000, the CNBC headline will use the phrase "higher than expected."

  The best way to think about this nonsense is to focus on the so-called "birth/death" ratio - a statistic that is buried in the Dept of Labor's monthly "establishment survey" report and generally not reported well, if at all, by any reporters on CNBC. John Mauldin, and other realistic econo-pundits and economists always drill down to this statistic to see what's happening. (Note: this ratio is the Dept of Labor's estimate as to how many jobs were created ("born") and how many were lost ("died")). Mauldin reminds us that, because this ratio is an estimate, and utilizes statistical regression analysis to compute, in the beginning of a recessionary cycle (think end of 2006 and 2007), this measurement overstates jobs created and understates jobs lost (a double whammy effect). The reverse is true when economic recoveries begin. You see evidence of this phenomenon much later, like, we're talking ONE YEAR later, as the actual (not estimated) numbers of jobs created or lost is compiled - which lead to "data revisions." Recall how 2007's monthly jobs numbers looked pretty good, only to be revised downward by hundreds of thousands per month one year later. Another example is the 2002-2005 time period, where the Democrats were squawking about a "jobless recovery." Data revisions - one year ex post facto - showed those years to have actual robust job growth per month.

  This method isn't perfect, as Mauldin says, but it's the "devil we know". There is NO reason to be paranoid about how the Dept of Labor makes this computation - they use it no matter who resides in the Oval Office. The only opportunity for the Dept of Labor to monkey with this number is if they engage in "baseline revisions". I don't think that will happen with tomorrow's number as the Dept did that about six months ago (and I think it was an "impromptu" or non-scheduled baseline revision - so if they were to do that again to juice the jobs number upward tomorrow, even Steve Liesman on CNBC may cry foul).

  In any case, what does all this mean for making a guess tomorrow?

  Well, however muddling our current recovery may be (1.9% annualized real GDP growth in the first quarter 2012) we are experiencing economic growth that is net positive. This has been the case since the third quarter of 2009. Because we've been in a technical economic recovery now for almost three years, the birth/death ratio component of the monthly "establishment survey" produced by the Dept of Labor "should be" undercounting the net creation of jobs as each month is reported. You should be able to tell that that is happening by looking at the data revisions that the Dept of Labor computes for the past several months - in that they should be UPWARD revisions. I believe that indeed has been the case for the past four months now. The upward revisions are by no means staggering, and that is to be expected, because the annual real GDP growth since the beginning of 2009 has been fairly anemic - i.e. well below the "Goldilocks" level of 3% growth per year. So that implies, to me anyway, that job growth numbers on this survey have started to "flatten out" commensurate with low GDP growth levels (after temporarily teasing everyone with big monthly numbers last fall). That is why I don't predict much movement off the 150,000 number. Regardless of tomorrow's number, look for the past three months data to be revised upward. It will be interesting to see if that makes any news (I'm sure Steve Liesman will be all over it).