This Friday the Bureau of Labor Statistics will release its guess as to how many jobs were created in April. The media nitwits will report whatever the number as if it were the gospel truth. Those who need the action will trade the number as if it means something.
It is sad to me that the BLS and everyone else but us ignores the fact that real time data is readily available on how many people are working and how much they are making. Where? Embedded in the withheld income and employment taxes sent to the US Treasury every day by all employers.
The truth is that the initial BLS new jobs number is a joke even in the eyes of the BLS. How do I know that? I just reread some BLS footnotes for the first time in several years.
By the way back in 1971, after getting a Harvard MBA, my first real job on Wall Street was as an investigative reporter working for Alan Abelson at Barrons Financial Weekly. Whenever Alan asked me to look for bad stuff at some company, what I did first was start in the footnotes. That is where the truth is usually hidden.
The BLS monthly job survey has a footnote called the Employment Situation Technical Note.
I doubt that very many of the press and particularly traders have ever looked at that footnote. What is in there confirms my worst fears about the quality of the data.
First of all the unemployment percentage number comes from a Census Bureau survey, snail mailed to 60,000 households the week of the month that includes the 12th. The footnote does not disclose how many actually respond by the end of the month, but I would guess that no more than half do. In other words the unemployment percentage number touted and argued about endlessly is the result of 30,000 responders out of millions of households. How accurate can that be? There is no way to even attempt to true that.
Then there is this Fridays payroll jobs number which is based upon a survey of 141,000 businesses and government agencies. The footnote says the active sample includes approximately one-third of all nonfarm payroll employees. However, the note does not say what percentage respond within two weeks of being queried? My understanding is that probably two-thirds or so respond, in other words employers of about a quarter of the workforce.
So, how accurate is a survey of about a quarter of all employers? The BLS footnote itself says not very. The BLS says that they have 90% confidence that their monthly estimate is accurate to within plus or minus 100,000 jobs either way. That means that if this Fridays number is reported as 100,000 new payroll jobs, in reality the job gain could be anywhere from 0 to 200,000. And the nitwits would treat the 100,000 number as the gospel truth.
This is nuts. We live in a real time trading world, and the government puts out data with an accuracy range wide enough to sink an entire trading portfolio. All this and real time data on jobs, income and spending is readily available and accessible.
While the bad news is the government puts out inaccurate economic data, the good news is that all the government economists still have jobs.
President & CEO TrimTabs Investment Research
Portfolio Manager, TrimTabs Float Shrink ETF (TTFS)
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