Reality versus Polls
The Bureau of Labor Statistics does a monthly survey of employment, calling roughly 50,000 businesses to get an estimate of the number of jobs created or lost over the preceding month. It is an estimate. They have a statistic to account for jobs they miss in the survey called the birth/death rate, based upon past trends. If you are going to have to make an estimate of employment, it is as good a method as any.
The BLS survey shows payroll growth at 1.8% and had wages growing at 4.3% last September. But then they come back and produce another report from hard data that comes out a few quarters later, which covers 98% of US jobs. They also go to state unemployment insurance programs which have reasonably accurate figures at to wages and taxes.
They just released the data for the third quarter of 2006. It looks like actual job growth was 1.5%, somewhat lower than the estimates. But the real eye opener was that wages grew an anemic 0.9% on a year over year basis. Given that inflation was in the 2.5% range, this means household income did not keep up with inflation.
Combine that with today's release of the Producer Price Index which showed prices rising by 1% following February's rise of 1.3%, which suggests that there is still some inflation in the pipeline, and an increase in the number of continuing jobless claims and it is no wonder that consumer sentiment is dropping. Sentiment hit a cycle high in January and has deteriorated rapidly since then.
BLS monthly numbers are based on a methodology that is backward looking. I believe that April has the highest number of estimated jobs created annually in the birth model, thus perhaps overstating the actual numbers of jobs created. This birth/death model is based on past historical trends. Thus there is no way that the BLS data will catch the real drop in employment from a recession until they go back and look at the data a few quarters later. About the most you can expect is that they will get the direction right, so take the numbers coming out in the next few months with a few grains of salt.
(This is not meant to criticize or suggest some conspiracy. The BLS staff is charged with making estimates way before they get enough data and they do as reasonable a job as one can expect. I am glad it is not my job, however.)
It's the Economy, Stupid!
A lot of (mostly liberal) pundits want to blame the lousy sentiment numbers on Bush and the war in Iraq. I seriously doubt it. It's the Economy, Stupid. The University of Michigan Consumer Sentiment Survey polls sentiment about both present conditions and future expectations. The number indicates that consumers are far more pessimistic about the future than they are the present, although as noted both are trending down. Let's look at a few snapshots to get a sense as to why people are getting nervous.
The Liscio Report, among other things, tracks sales tax receipts from the various states. They report a serious deterioration in sales tax receipts in March. "In March only 18% of the states in our survey hit or exceeded their estimated sales tax collections, and levels in just over 30% of the states were lower than they were in March 2006, some quite steeply so." (www.theliscioreport.com)
Again, if inflation is 2.5%, you would expect sales tax receipts to grow year over year, not drop as they did in 30% of the states. Part of the reasons suggested were lower spending on home materials, as well as increased unemployment in some of the states, especially the Mid-west.
"In the states with the hottest housing markets, where one-third of sales tax growth was estimated to be directly related to the housing market, the housing market is the obvious culprit. Our contacts report building materials in double-digit decline, and not one felt comfortable suggesting when this might turn around. These states are now missing recently lowered collections, and many are negative year over year."
Some of this softness is certainly due to a decrease in mortgage equity withdrawals
