Friday, September 19, 2014

Reuters on Yesterday’s Employment-Related Data: Too Rosy

Yesterday, a report with commentary on jobless claims and residential building was published in The New York Times and elsewhere.  Titled “Housing Data Is Mixed, but Job Figures Show Strength,” with a byline only of Reuters, it showed how such data can be misunderstood.  What do I mean?   Going through the article…

“The number of Americans filing new claims for unemployment benefits fell more than expected last week, suggesting that a sharp slowdown in job growth last month was probably an aberration.”

We can’t reasonably assess the robustness of new job growth through how many people are officially dismissed from old ones, have reasonable grounds to get unemployment compensation, and are not retiring or leaving by their own choice.  Reuters is hardly the only source to do that, but it still just doesn’t make sense. 

“While other data on Thursday showed that housing starts declined in August, upward revisions for groundbreaking in July offered hope that the housing market was continuing to improve.  “We have broad-based growth in the economy, including the housing market,” said Gus Faucher, senior economist at PNC Financial Services Group.”

Fine, but a country of 318 million people and rising, when demonstrably not in a recession, had darn well better have “broad-based growth.”  The issue is whether the level of said growth is a sign of strength, or whether it is just at a neutral point. 

“Initial claims for state unemployment benefits dropped 36,000 to a seasonally adjusted 280,000 for the week ended Sept. 13, the lowest level since July, the Labor Department said Thursday.”

The lowest level since July?  That’s two months!  So what?

“Economists polled by Reuters had forecast claims falling to only 305,000 last week. The four-week moving average of claims, considered a better measure of labor market trends as it irons out week-to-week volatility, slipped 4,750, to 299,500.”

That’s not much of a difference – less than 2%. 

““This is consistent with that the Federal Reserve is expecting to see,” Mr. Faucher said of the data.”

So it seems Mr. Faucher wasn’t impressed at all, in effect giving this data a grade of C.  The tone of the article is more positive than that.    

“The data came a day after the Federal Reserve renewed a pledge to keep interest rates near zero for a “considerable time,” while hinting at a faster pace of rate increases than the central bank was signaling a few months ago.”

Keep them low they should and keep them low they will.  Janet Yellen clearly seems to realize, correctly, that the unemployment rate is not the only story.  If she is not aware of the American Job Shortage Number (AJSN) showing the country could quickly absorb almost 20 million more positions, she seems to act as if she is.   

“In a separate report, the Commerce Department said housing starts fell 14.4 percent to a seasonally adjusted annual pace of 956,000 units.  July’s starts were revised to show a 1.12-million unit rate, the highest level since November 2007, instead of the previously reported 1.09-million unit rate.”

A tad better, but that’s all.  Most of that is due to pent-up demand, as housing starts have been poor for years. 

“That helped take some of the sting out of the report, which also showed that permits fell 5.6 percent, to a 998,000-unit pace in August.  Single-family starts in the South, where about half of the single-family construction takes place, increased last month to an eight-month high.  Permits in the South hit their highest level since April 2008.”

Some better, some worse.  The only other major reason for any improvement in housing may be more subprime loans, as the Times also reported this past week. 

“Housing is clawing back after a setback caused by a rise in mortgage rates last year.  However, it remains constrained by a relatively high unemployment rate and stringent lending practices by financial institutions.”

And fundamentally greater job insecurity, with the permanent crisis as the root cause. 

“With the labor market gaining traction, though, economists expect housing activity to accelerate next year.  “The underlying momentum in the housing sector remains quite favorable and we expect building activity to rebound next month,” said Millan Mulraine, deputy chief economist at TD Securities in New York.”

Rebound to what?  Accelerate how much?  There is no substantial good news, other than the prospect of continuing to inch forward, on the American employment front now. 

“Last week’s jobless claims data covered the period during which employers were surveyed for September’s nonfarm payrolls.  Claims fell 19,000 between the August and September survey periods.  The drop suggested that payroll growth rebounded from August’s eight-month low, which most economists dismissed as a fluke, noting that payroll gains tended to be smaller in August because of problems adjusting the data for seasonal hiring.”

As this data is already seasonally adjusted, that looks like bending the map to me.  And it doesn’t matter much anyway – whether 140,000 net new jobs gained or 240,000, it still projects to close to a decade to get to what anyone could reasonably call full employment. 

“Employers added only 142,000 jobs to their payrolls in August, snapping six consecutive months of job increases above 200,000.  The jobless claims report showed that the number of people still receiving benefits after an initial week of aid fell 63,000, to 2.43 million, in the week to Sept. 6.”

Actually, the number of people using up their unemployment benefits but not working would be a good indicator, with higher numbers being bad.  That points to August being not a good month, and once more the jobs crisis going nowhere.  And nothing – nothing at all – in this report contradicts that at all.   So being positive about this incremental and mixed data is a disservice.  That’s just the opposite of what we need now.

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