Friday, May 25, 2007

I Hate It When the Numbers Don’t Jive

In yesterday’s (5/24/07) Wall Street Journal there was a very interesting article about discrepancies in construction employment numbers produced by the BLS. This is a critical issue to understand so the correct relationship can be made between job reallocation and recessions.

Those signs are particularly stark in the home-building industry, which has been hurt by the slump in the housing market. Housing starts in April fell 33% from their recent peak in January 2006. Yet, the number of residential-construction jobs has dropped by only about 3% over the same period.

Economists cite several possible explanations for the disparity. One is that layoffs have lagged behind the housing slump and will weaken further.

In addition, some economists say the monthly figures from the Labor Department's Bureau of Labor Statistics may be overestimating employment, perhaps by misclassifying construction workers or by failing to count large numbers of laid-off illegal immigrants.

The bureau releases two monthly employment figures: the unemployment rate, which is based on a household survey, and a tally of nonfarm payrolls, based on a survey of employers. Both are conducted through sampling and depend on voluntary responses.

A lesser-known employment snapshot, based on a quarterly census of state unemployment insurance records, shows the economy created about 19,000 private-sector jobs in the third quarter of 2006, the most recent data available. That contrasts with the 500,000 indicated in the monthly figures for that period. It also shows the number of construction jobs dropped by 77,000, in contrast with the increase of 19,000 jobs shown in the monthly surveys. . . . .

. . . . The quarterly and monthly surveys tend to follow similar long-term trends. The household survey polls 60,000 households, while the monthly business survey includes about 160,000 establishments employing a third of the nation's work force.

The quarterly census covers 97% of the civilian work force after excluding farm workers and the self-employed. Though released with an eight-month lag, it is "a more thorough accounting of the economy," said Bureau of Labor Statistics economist David Talan.

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