Getting Behind Today's Employment Report

Yves Smith at Naked Capitalism submits:

Those who have been following the job creation story weren't surprised at the weak BLS employment (the so-called "non-farm payroll") report today, or by the fact that it revised the results for the last three months downward by 81,000. Various commentators (see here, here, and here) have observed that the rises reported in recent months have been due almost entirely to a "voodoo calculation, the "birth/death model" a plug to allow for business creation and failure (one we've commented on before). Note this feature was added in 2001.

And where had these jobs supposedly been created? In construction. Need we say more?

Barry Ritholtz offered his latest observation about the birth/death model before the BLS report was released:

Considering how much softer the economy has been much in 2007 than last year, it is simply unconscionable that the B/D model has actually created more jobs in 2007 than it created at this point in 2006.

Year Jan Feb Mar Apr May Jun Jul
2006 -193 116 135 271 211 175 -57
2007 -175 118 128 317 203 156 26

In an unexpectedly and extremely weak employment report from the Bureau of Labor Statistics, the nation's payrolls shrunk last month, the first monthly decline since August 2003. Prior months' job gains were revised down by 81,000....

The reason August's unemployment rate was unchanged was due to a large monthly fall off--down 340,000--in the labor force.... Had those who left the labor force instead been counted as unemployed, the rate would have jumped to 4.85%.....

Many industries shed jobs or grew slowly in August.... factory employment was down 46,000, the largest monthly loss in that sector since 2003, dispelling hopes that strong exports in the second quarter might help stem these losses. Auto manufacturers made the largest cuts in the factory sector, down 11,000 jobs.

Reflecting the housing market turmoil--including sharply diminished home sales, rising inventories, and falling prices--construction employment fell 22,000, driven largely by a decline in residential contractors....

Local government was also a big job loser last month, driven by a 32,000 loss in public education....

Health care, however, was up 35,000 jobs and continues to buck any negative trends by steadily adding employment. Restaurants and bars also gained 24,000 jobs, and retail trade added 12,500.

These latter gains in retail and food services suggest consumers are still spending freely in some areas....

A central question surrounding today's report was whether it would provide clear evidence of a contagion effect from financial markets. Are the bursting housing bubble, the credit crunch, and recent financial market turmoil having a negative impact on the job market? The BLS report provides an unequivocal "yes" in response to that question.