There’s been a lot of talk this morning on the massive percentage of of the December job growth shown this morning amongst the “Couriers and Messengers” portion of the report. This is one of those odd things where the BLS, although attempting to adjust for seasonality in the numbers seem to fail to account for the Holiday season gift deliveries. Anecdotally, I can tell you it looked like a UPS and Fedex union convention on my block in the days before Christmas. Our family has almost all our Christmas gifts ordered from online services like Amazon and it looks like our neighbors did as well. Here’s the WSJ on the difficulty the BLS seems to have with this when compiling the data:
The standard question people are asking about this morning’s strong jobs report is whether it’s nothing more than so much holiday strength, which will vanish with the turn of the calendar to cold, cold January.
The standard reply to that question has been, duh, the Bureau of Labor Statistics adjusts for that seasonality.
But there are still doubts about how well they’re doing that adjusting.
Tom Porcelli at RBC sent along this eye-catching chart which demonstrates why people might be having these doubts. It’s a chart of hiring in the sector known as “couriers and messengers,” a group that includes the elf workers that help deliver gifts to good girls and boys and coal to the naughty.
You don’t have to look too hard at the chart to see what looks an awful lot like seasonality at work — these numbers spike every December and then fade immediately.
What we find peculiar is that the BLS once again looks to have failed to properly adjust for the seasonal hiring of holiday couriers. This series is actually seasonally adjusted yet every December over the past few years we see a surge in hiring in this space followed by a rather large unwind in January. This year in particular, a sizeable 42k jobs were added meaning we should see about the same number fall out next month. Accounting for this anomaly, today’s +212k (private sector payroll gain) loses a bit of its luster.
So that’s a fairly pessimistic take that one can extrapolate forward. January may not look so good. But there’s also a more optimistic take. Yes the data isn’t great on this seasonal adjustment and therefore these numbers should be taken with a grain of salt. But those seasonal courier numbers aren’t the same every year. And this year’s bump could be a sign of an improving economy nonetheless. Here’s Matt Yglesias:
Many eagle eyed observers have noted that the good jobs numbers today appear to be driven to a surprisingly large extent by a hiring surge of couriers and messengers that arguably reflects a temporary Christmas surge. Now it's for exactly this reason that the BLS applies a seasonal adjustment factor to the data, so in principle this problem shouldn't arise. But after spending some time with the historical tables this morning, it does look to me like the BLS's adjustment formula may have become mis-calibrated, so I don't dismiss the worry. But look at the chart above of data from the non-adjusted series just looking at couriers in December.
I would say this shows that December courier employment tracks overall economic conditions. When there's a recession, courier employment falls. When there's growth, it rises. Not month-to-month, mind you, but year-to-year. So what we see in this new data is very much consistent with a recovery story. Now of course in one or two months we'll have revised data and better information. But my preliminary read of the preliminary data is that this is legit good news.
Another interesting thing to look at with these numbers is the sense that we may be seeing some divergence between the US economy and Europe. Dan talked a little about this in his MorningWord. Here's some scary data out of Europe that is very different from what we're seeing here. From the Guardian:
Public spending cuts and collapsing business confidence have sent unemployment in the eurozone to a record 16 million people, up 587,000 on the same month in 2010.
Official figures compiled by Eurostat, the EU's statistics agency, show the heavy toll taken on the workforce by austerity measures and the slowdown in the eurozone economy during 2011.
Unemployment across the 17-member single currency area hit 16.4 million by November. The unemployment rate – the proportion of the workforce without a job – has risen only slightly over the past 12 months, to 10.3%; but many workers have given up on finding a job.
In bailed-out Greece, the unemployment rate stands at 18.8%, up from 13.3%; while Spain now has the highest unemployment rate in Europe, at 22.9%. In Germany, however, still the motor of the European economy, and as yet relatively unscathed by the downturn, the rate declined, from 9.1% to 8.1%.
The sharp divide between the strongest members of the eurozone and its recession-hit periphery underlines the tough challenge facing politicians in finding a solution to the crisis that all their voters are willing to accept.
And here's a little something to look at as far as revisions to the US labor picture. From the WaPo:
One thing to note about the monthly payroll numbers is that they always get revised by the Bureau of Labor Statistics — twice — in the months that follow, as better data flow in. The news that the economy added 200,000 jobs last month is just a preliminary estimate. We won’t really know what happened in December until February.
Why does that matter? Because in 2011, the initial jobs numbers typically got revised upwards. By a lot. If you only paid attention to the initial monthly estimates, then the U.S. economy added 1.38 million jobs last year. But when you take final revisions into account, the economy actually added 1.64 million jobs — and that’s not including final revisions for November and December.
Remember how, back in August, there were a lot of doomy headlines about the fact that August had added zero net jobs? That was just an initial estimate. When the final revisions quietly surfaced two months later, it turned out that we’d actually added 104,000 jobs in August. Likewise, after revisions, September turned out to be a better month — with 210,000 new jobs — than today’s December report. But while today’s report has been greeted with euphoria, September was seen as a dud at the time: the initial numbers said we had only added 103,000 jobs.
Why are the initial payroll estimates off? Jason Lange of Reuters has a nice piece trying to figure this out. What happens is that many businesses are a little tardy in sending in their responses to the government surveys — and once these stragglers report in, the numbers tend to nudge upward. But why should this happen so consistently? It’s a mystery. One possibility is that the government’s models appear to assume that the future will be just like the past — which may cause them to underestimate the pace of job growth during recessions.
In any case, that’s just a warning that we likely won’t know how many jobs the economy actually added in December until two months from now. But there’s a decent chance the numbers could turn out to be better than expected.