With Spring nearly upon us, today may be the last chance for excuse-makers to blame this winter’s awful weather for poor job creation. Consensus estimates are that payrolls increased 149,000 in February after a mediocre gain of 113,000 in January.
What is to blame for this weak ongoing job creation? Is it the Fed’s fault? Obamacare? An obstinate Republican-controlled House?
I go with “none of the above.” The reality is far more nuanced and complex.
As I have been writing (and pleading and screaming) for the past five years, we are in a post-credit-crisis recovery. These are relatively rare. They look very different than the normal, post-recession jobs recovery. As Carmen Reinhart and Ken Rogoff first observed in 2007 -- the paper without the spreadsheet error -- such recoveries are typically slow, characterized by weak GDP gains and mediocre job creation. The deleveraging process by corporations, households and government is the reason why.
That longer-term context gets ignored in the usual stupidity surrounding the monthly non-farm payrolls. Instead, we see a lot of sturm und drang over what is essentially a meaningless single data point. Perhaps this explains why Business Insider’s NFP countdown clock does not bother with hundredths of a second.
As a reminder, the monthly non-farm payrolls data does not precisely depict reality. Instead, it is a model, one subject to tracking errors, revisions and ongoing benchmarking. The initial numbers rarely are accurate, much less precise.
But as the statistician George E.P. Box told us so long ago, “Essentially, all models are wrong but some are useful.” That does a pretty good job describing the payroll report. It is both wrong and useful.
Wrong because it is imprecise and does not inform us how many jobs get created each month. My best guess is its off by a 100,000 or worse in any given month. But it is useful in that the regular monthly report uses the same methodology. That can reveal a change in overall trend, and that is enormously useful.
Employment Situation report out a 8:30 today.
(Barry Ritholtz writes about finance, the economy and the business world for Bloomberg View. Follow him on Twitter at @Ritholtz.)
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