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Today's Commentary: 08.31.04
The Jobless Report
Every month, for those who are uninitiated into the process of worry and wait - or is that wail - Wall Street, Washington, and investors anticipate the release of numerous surveys that are supposed to be indicators of economic health. But are they really what they portray themselves to be? In some cases, the truth can be what you want to believe. Over the course of this coming month, we will be taking a look at these surveys, breaking them down to their bare bones in the hopes of understanding what it all means to you and your money.
On Monday, personal spending and income numbers were released. This number, which is growing consistently out of whack with economic strength revealed that while spending was up, the wages that pay for those purchases barely moved. Two conclusions are being drawn from this release by the Commerce Department: one, the Federal Reserve Board may have been right calling the effects of rising oil prices that added to inflation as something transitory in nature. What they mean by that is prolonged inflation is not something they foresee as a drag on economic growth.
The second conclusion that can be drawn from those numbers is even easier to understand. Jobs are not being created fast enough and are not paying enough to match the cost of America's appetite to spend. Keeping the economy moving through artificial stimulus such as tax cuts and mortgage refinancing will not provide enough long term stimulus to close this gap.
Which leads me to the number that keeps Wall Street and, because of the convention being held in New York City, on the edge of their collective seats. Fortunately for the GOP, much of the hoopla will have faded by the time jobs report is announced on Friday.
On the first Friday of each month, the Bureau of Labor Statistics releases its jobs report based on two different surveys. They are often vastly different and depending on whom you speak with, superior in data to the other. The household survey, often the most politically favorable yardstick for incumbents whose job creation policy has been less than lustrous, is based on a smaller number of surveyed with a wider criteria for answers. The payroll survey, the questionnaire answered by over 400,000 business is often disregarded by spin-sters as incomplete and less revealing.
The household survey is conducted among 60,000 or so Americans who are asked, many by proxy, such generalities as "who is working in the house". Whomever is charged with answering the survey may cite his own lawn mowing job as employment, his unemployed father's freelance computer repair job as employment, and his mother's occasional catering business as work. Which is why this survey will be touted as the whole truth, capturing all of the employed, even if those jobs are second rate or merely second or third jobs to make ends meet.
The payroll survey counts jobs. The information provided to the survey comes from the businesses that create wage and salary work. Admittedly, it misses those entrepreneurs whose businesses may be growing from sidelines to mainstream work, but the chances are, those jobs will eventually show up as employer numbers in the future. While Uncle Harry's garage based elixir production might be considered work in the household survey, the payroll survey will not show his work until he actually can call what he does work. But some economists point out that this flaw is not in need of correction. Self-employment is not always entrepreneurial in nature. Often it is necessity and in poor job markets, this is, as the economist are likely to say, counter-cyclical. That means, transitory.
Base your belief in the strength of the economy using the payroll report. Although it also has flaws, it will always be a better historic guide to the actual state of employment. And if that is the case, look for those numbers to come significantly below forecasts, which, by the way, are pretty dismal.
The Blue Money Report
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