Over the last couple of months, I have indicated that, because the seasonal adjustment process cannot handle significant weather deviation issues, the first quarter reported data (.1% Real GDP, for example) significantly understate the underlying strength of the economy. Friday’s Establishment Survey (ES) employment report gave credence to that view. Not only did April’s newly created jobs come in at 288,000, way above expectations (218,000), but February and March were each revised significantly higher. The 3 month average gain in jobs is now 238,000. This is enough to signal, at least to me, that the economy is stronger than it has been since the recession ended.
The media, of course, glommed on to the negative side of the story, which was found in the Household Survey (HS). [One must realize that the HS is historically much more volatile than the ES because the sample size is so much smaller (554,000 vs. 60,000). As a result, statistical significance is plus or minus 94,600 for the ES and a whopping plus or minus 436,000 for the HS.] The HS is used to calculate the headline Unemployment Rate (U3). And, in April, the HS showed that 73,000 fewer people were working and 806,000 fewer were in the labor force. [The labor force issue has to do with demographics, like baby boomer retirements, and disincentives to work.] So, the media was all over the HS, as if it negated the strength shown by the ES.
Of course, the headline chasing media ignored the March HS data, which showed 476,000 new jobs created. Given the volatility in it, it is better to view the HS over several months. So, let’s go back to 12/31/13. Since then, the HS shows a total employment gain of 1,083,000. The ES shows a total gain of 857,000 (of which 842,000 were created in the private sector). When viewed properly, both surveys show a very strong economy.
Robert Barone (Ph.D., economics, Georgetown University) is a principal of Universal Value Advisors, Reno, a registered investment adviser. Barone is a former director of the Federal Home Loan Bank of San Francisco and is currently a director of Allied Mineral Products, Columbus, Ohio, AAA Northern California, Nevada, Utah Auto Club, and the associated AAA Insurance Co., where he chairs the investment committee.
Contact Robert Barone or the professionals at UVA (Joshua Barone and Andrea Knapp) who are available to discuss client investment needs. Call them at 775-284-7778.
Statistics and other information have been compiled from various sources. Universal Value Advisors believes the facts and information to be accurate and credible but makes no guarantee to the complete accuracy of this information.