Tuesday, August 7, 2018

US Monthly Employment and Excessive Analysis

On Friday August 3, the US Labor Department announced the monthly employment number for July 2018. You would have thought it was the 4th of July. That's the way the press seems to handle every data announcement. Every data report is a special baby announcement: It's a boy, and what a whopper he is!

The below graph of seasonally adjusted monthly non-farm employment shows all the changes since the beginning of 2002. If you can see the vertical axis, you will see that one-month employment changes stayed between a high of almost 600,000 and a low of negative 800,000. But those extremes exaggerate what you see most of the time. If you take out the largest changes and look at the rest, you see that both before and after the recession (shaded area), employment changes averaged around 200,000 per month.

Another thing you see in the graph for the years before the recession and after the brief recovery is that employment changes bounced around more than a Nolan in a bounce house. You could get sick watching the employment change number go up and then down and then up again.

What's my point? My point is that, except for recessions, this is pretty boring stuff. It's like my weight. I weigh pretty much 200 pounds (okay, I weigh more than that but let's stick with 200 since the chart says 200). Betty bakes some cookies and I gain a few pounds. I go to the gym and I lose a few pounds. No one cares. I weigh 200 pounds...plus or minus.

Imagine the press in my front yard waiting to hear my weight right after my cookie-binge week. One reporter says to the other, I hear he ate three plates of cookies every night. He even piled on vanilla ice cream. I bet he weighs 210. Another one heard that I dreamed I did 10 burpees each day and that I probably only gained 8 pounds. Apple Pie stock slipped just below a zillion dollars on hearing all this.

I finally waddle through the front door and announce to the thousands of reporters -- the scale says I weigh 206. There is a deep hush as the public realizes they overestimated my weight. Kroger closed early that day, and Apple Pie stock fell below Amazon.

When the employment number got announced on August 3, the reactions to the announcements reactions were similarly silly. Many pointed out that the number was very strong. A good number. But sadly, it was a little lower than some had expected. Much was written and much was said. Hand-wringing was profound. But really, folks? Look at that graph. If the employment change goes under 200,000 one month, what are you supposed to think? Yup -- next month it will likely go above 200. End of story. If it goes under 200,000 for two or three months, what do we learn? Yup, it will return to 200,000 the next month. If it goes under 200,000 for six months, then we have something to talk about!

In the meantime the press will indulge our need to be excited each month. Experts will say many interesting things about trends and cycles. I just can't wait until September's report for August.

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