Playing Catch Down

Your phrase for the day is “catch down”. If you’ve been surprised or puzzled or both by the robust job growth figures being published by the Bureau of Labor Statistics, you’re not the only one. So have the analysts at Goldman-Sachs:

One of the big debates among economists now is whether the economy will catch up with the booming U.S. jobs machine.
The year so far has been characterized by downside surprises across a wide array of economic indicators. Retail sales slumped in February and factory output fell for a third consecutive month. Continued strength in the labor market has been one of the only positive outliers.

Now, Goldman Sachs Group Inc. is weighing in. Job growth will have to slow going forward to catch down to the rest of the data, according to David Mericle, a Goldman Sachs economist, who says the pace of employment gains has “been running ‘too hot’ recently” relative to overall economic growth.

“Our model suggests that the recent 275-300k rate of monthly payroll gains is likely to be as good as it gets,” Mericle wrote in a note to clients. “Under our baseline forecast for 3% real GDP growth this year and next, we expect a gradual deceleration to a roughly 200k rate. The risks to both the GDP and employment numbers in 2016 are a bit to the downside.”

The article is accompanied by lots of nice charts and graphs.

My rule of thumb is that if ordinary people are behaving as though the economy were improving it probably is. They haven’t been so it probably isn’t whatever the BLS says. I also note that for the last several months the establishment survey has diverged substantially from the household survey. The BLS doesn’t simply report raw numbers. They apply several fudge factors to the numbers and one of the fudge factor they apply is called the “birth-death ratio” which means their guesstimate, based on history, of how many business are formed or eliminated over a given period.

Another of my rules of thumb: when the fudge factor you’re applying is a lot bigger than the changes in the data you’re trying to measure, a little skepticism is due and that’s the way it is with the birth-death ratio. I think the model needs some recalibration.

Meanwhile we’ll just have to hope that the BLS establishment survey is right and everybody else is wrong.

We can also relish our new phrase. I’ve been catching down with things for years. See? Handy.

5 comments… add one
  • ... Link

    I’m caught all the fuck down. Been doing it for seven years, come April 11.

    I’ll note too that jobs created doesn’t mean more people employed. Fire one full time worker, divide the job into three, and give three people with part-time jobs a second part-time job, and you’ve created three jobs while netting one less worker, as an example.

    This counts as progress to our politicians, bankers, and the people running the companies, which is why the very first thing any new CEO does is start firing people.

  • ... Link

    Excuse me, you’ve created TWO jobs on net in my scenario.

  • which is why the very first thing any new CEO does is start firing people.

    Nah. Staff reductions enable you to cut costs without knowing anything. The equivalent of a sugar high.

  • ... Link

    Looks like Heinz & Kraft personnel are next on the chopping block. Synergy, bitchez!

  • Ben Wolf Link

    Much of the problem is definitional as the BLS claims a person is employed if they find only one hour of work per week while the BEA can label a recession as “growth” so long as a single quarter during the period measured shows the slightest uptick. All these things are determined by what makes a then-current president look best, or at least not quite so bad.

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