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June 01, 2007

Construction Jobs Puzzle
by Mike Shedlock

Once again we have another totally unbelievable jobs report. This makes two in a row. For a recap of last months complete jobs fabrication, please see Birth Death Model Fatally Flawed.

MarketWatch is reporting Payrolls rebound in May.

U.S. nonfarm payrolls increased by a better-than-expected 157,000 in May, the Labor Department reported Friday.

Economists at Goldman Sachs said the May report would be a critical in shaping opinion on where the economy is heading and for Federal Reserve policy in the months ahead. The report suggests continued slow growth, but no deterioration in activity.

In contrast to prior reports, there were no major revisions to earlier data. Payroll growth in March and April was revised lower by only 10,000 jobs.

The service sector provided all of the job growth in May.

Goods-producing industries lost 19,000 jobs. Construction employment was flat, a continued puzzle to economists who have been expecting declines in the sector that have yet to materialize.

Manufacturing firms cut 19,000 jobs, with over half of the lost jobs coming from the motor vehicle sector. Many economists had expected an improved factory job report in May given the recent upturn in manufacturing data.

Service-providing industries added 176,000 jobs, including 54,000 in education and health services and 32,000 in professional and business services. Retail lost 5,000 jobs.

Government added 22,000 jobs in May.

Construction employment was flat, a continued puzzle to economists who have been expecting declines in the sector that have yet to materialize.

Puzzle? What puzzle? Let's take a look at the birth/death model to see if we can resolve the puzzle.

The puzzle is not whether construction jobs were lost (most assuredly they were), the puzzle is in a birth/death model that has added 89,000 construction jobs over the last two months (at a time when housing starts are declining at a 15.7% annualized rate). Wow! But that is not the only birth/death puzzle. The last two months have seen a grand total of 520,000 jobs assumed to have been created by the BLS's model.

The GDP has plunged to .6% over the last two quarters, the slowest growth since 2002 (see Home Prices Rise:a Surprise?) yet the birth/death model is adding jobs at one of the highest clips ever.

The BLS has not released details of how their model works. Shouldn't that come under the Freedom of Information Act? Or is the birth/death model a top secret security risk? How does the BLS get away with this nonsense and why does anyone believe these jobs reports? That's the biggest puzzle of all.

Mike Shedlock / Mish
http://globaleconomicanalysis.blogspot.com/

Michael "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Visit http://www.sitkapacific.com/ to learn more about wealth management for investors seeking strong performance with low volatility.