Greg Ip: Overestimating Jobs Growth?
Greg Ip reports on Jon Hatzius's fears:
Washington Wire - WSJ.com: Overestimating Jobs Growth?: Are government statisticians missing a turn for the worse in the jobs market? Goldman Sachs suspects so.
The firm’s chief U.S. economist, Jan Hatzius, argues in a report that the Bureau of Labor Statistics might be overestimating the number of jobs created in new firms. “Employment growth may already have slowed by considerably more than suggested by the official nonfarm payroll figures,” Hatzius says. One sign: quarterly unemployment insurance records, which are used for annual benchmark revisions to payrolls, suggest actual employment was already running behind the official tally by last fall.
Here’s the background: Each month the BLS surveys workplaces that employ about third of all nonfarm workers, and it estimates the rest, making revisions over the next two months as more complete information comes in. But it has no good way of measuring jobs created by new firms, since its monthly surveys have no record of their existence. Instead, it fills in the gap with a “birth/death” model that uses historic patterns to predict how many jobs were created by new firms or destroyed by firms going out of business. Once a year, those estimates are replaced with hard data from unemployment insurance records.
Hatzius notes that by the BLS’s own admission, the birth/death model has trouble catching turning points. He notes that because it is based on history, it tends to adjust to the most recent trend. In the initial years of the expansion, the model underestimated job growth, most spectacularly in the year through March 2006, for which there was a very large upward revision later on.
That pattern has now been incorporated into the model. So far this year, it has added an average of 113,000 jobs per month, compared with 88,000 throughout 2006 and 68,000 in 2005. Hatzius suspects it may have gone too far and is now overestimating job growth, but we won’t know it until preliminary benchmark revisions are announced this fall.
