FXA Alert. Payroll Revision Friday Gets Political
While a few economists and fund managers grappled with the likelihood of a upward benchmark revision to non-farm payrolls from April 2003 to March 2004 last week, it took Greg Ip of the WSJ (attached below) to bring it to the attention of a much larger audience. Ip also added meat to the bones of last week's speculation/number crunching. The Council of Economic Advisors issued a memo for the White House indicating that payrolls would be revised upward in the benchmark revision (monthly revisions to follow next
February)
for the Apr-Mar year on Friday by 288,000 or possibly more (384,000). I spoke to the BLS section head in charge of the revisions last week when this came up and it was pretty clear that the bulk of the BLS benchmark revision was completed. As such the CEA memo is more than simply the result of number crunching by the talented Greg Mankiw. Bush clearly needs more jobs from the firm survey to check criticism from Kerry that his term as president would be first since Herbert Hoover where there was a net loss of jobs...and it could be even more helpful for Bush if September payrolls were up sharply (market is looking for 150,000) Friday. Keep in mind that 288,000 jobs is close to being statistically insignificant measured against the total labor force. But in the myopic world of presidential politics, every job counts. It is also noteworthy that the second debate occurs Friday night (town hall style, no topical focus) and Bush will surely have fresh ammo from the benchmark revision and perhaps the September payroll advance. The CEA and White House will know the September payroll number late Thursday (4-5PM).
David Gilmore
FXA
www.fxa.com
Political Debate Over Jobs Intensifies
Bush Team Hopes for Lift
From Friday Payroll Data;
Revisions to Get Attention
By GREG IP
Staff Reporter of THE WALL STREET JOURNAL
October 5, 2004; Page A2
The jobs debate heats up this week, with the White House expecting that revised payroll data to be released Friday will put a shine on President Bush's record of helping the economy create new jobs.
Friday's data will be the last released before the Nov. 2 election. While markets will focus on the Bureau of Labor Statistics' jobs report for September, politicians might pay more attention to revised data for the period from March 2003 through March 2004.
A memo from the president's Council of Economic Advisers estimates that the payroll-employment figure for that period could be revised upward by 288,000 jobs, and conceivably by as much as 384,000. In August, nonfarm payroll employment stood 913,000 jobs, or 0.8%, below the level when President Bush took office.
Even a lesser revision, combined with additional jobs reported for July through September, would reduce Mr. Bush's first-term jobs deficit and weaken challenger Sen. John Kerry's attacks on his economic policies. The two meet for a town-hall style debate Friday evening in St. Louis, and are scheduled to debate domestic policy the following Wednesday.
The White House estimate, prepared by career CEA technical staff, hasn't any effect on what the independent BLS actually will report Friday. "This is a very preliminary estimate," said CEA spokesman Phillip Swagel, adding it was generated by an economic model with a typical statistical error range of plus or minus 140,000 jobs. "The only number that matters is the number that the BLS announces on Friday." The BLS will incorporate its revisions in the
official data in February.
Wall Street economists on average expect nonfarm payrolls to have risen 145,000 in September from August, according to a survey by Dow Jones Newswires and CNBC, with hurricanes having depressed the total by about 50,000.
The CEA memo uses publicly available unemployment insurance records to calculate that employment from March 2003 through December 2003 grew by 288,000, or 32,000 per month, more than previously published BLS estimates. The memo says "it is tempting" to extrapolate the monthly figure out to March 2004, producing a total increase of 384,000. But it downplays the higher figure, warning that employment in the first three months of the year could well be revised down, not up, citing other data revisions that tilt in
that direction.
Even with positive revisions, Democrats probably will be able to attack Mr. Bush as the first president to oversee no net job creation since Herbert Hoover. Republicans have countered that the Bureau of Labor Statistics' household survey shows employment actually up 1.9 million, or 1.4%, under Mr. Bush. But a study published earlier this year by the Federal Reserve Bank of Cleveland finds the household survey, examined more closely, tells a much less positive story.
The staff study found that when the most reliable part of the household survey is compared with the payroll survey, "both measures ... show a surprisingly similar picture of the weak labor-market performance that has prevailed during this recovery relative to previous business cycle periods."
Cleveland Fed economists Mark Schweitzer and Guhan Venkatu note in their study that the household survey's employment total can be distorted by problems in extrapolating from a sample of 60,000 households to the total population, because of uncertainty surrounding population estimates.
The economists look instead at the percentage of the working-age population that is employed, which they write is "more informative and less problematic" because it factors out population. The authors say that in the nine post-World War II recoveries prior to the most recent, this "employment to population ratio" fell on average 1.5 percentage points in the 18 months after recession began. By the three-year mark, it was down less than half a point.
After the most recent recession began in 2001, the ratio tracked the postwar average for the first 18 months, but then continued to decline. By the three-year mark it was down 2.2 percentage points from the peak.
"This picture is strikingly similar" to the poor performance of payroll employment relative to previous recoveries, they write. The authors estimate payroll employment rose 3.7% in the first three years of the nine previous business cycles, but is still down 1.5% in the latest.
Separately, a Commerce Department report showed that demand for U.S. factory goods dropped unexpectedly in August, the first decline in four months, as orders for civilian aircraft plunged.
Orders for factory goods slipped 0.1%, following an upwardly revised 1.7%
increase in July, the department said. The volatile civilian-aircraft sector plunged 42.9%, while defense aircraft and parts orders fell 3%. Excluding transportation, orders increased 1.3%, in line with signs that broad factory activity remains strong.
Orders for defense capital goods rose 4.6%, after falling 15.8% in July. Without defense orders, factory orders fell 0.2%. Demand for all nondefense capital goods -- business equipment meant to last 10 years or more -- declined 7.7% in August.
The factory report showed increases in most categories. Consumer-goods orders rose 1.4% in August, after a 0.1% decline in July, the report said.
Write to Greg Ip at greg.ip@wsj.com |
