Hussman Weekly: Number Five
On the economic front, Friday’s employment report was interesting in that total non-farm payrolls (the “establishment survey” figure most widely quoted in news reports) came in slightly below expectations, but total civilian employment (the “household survey” figure used to compute the unemployment rate) jumped enough to produce a drop in the unemployment rate to 7.8%. While the difference was certainly an outlier in terms of typical correlations between establishment and household figures, it wasn’t the sort of outlier that would justify the suggestions of political conspiracy that were bandied about over the weekend.
The fact is that on a month-to-month basis, there is only a 50% correlation between the establishment and household employment figures, rising to about 90% correlation for year-over-year changes. The household data is notably more volatile, but the establishment figure makes up for the lower volatility with significant after-the-fact revisions, particularly around economic turning points. The month-to-month changes above and below the 12-month average are about 50% larger in each direction for the household survey than for the establishment survey. What’s interesting is that these changes are often matched by changes in the reported size of the labor force, which is why they don’t usually result in large changes in the unemployment rate from month-to-month. For example, in January 2000, the household figure jumped by over 2 million jobs, while the establishment figure increased by only 248,000 jobs. But the unemployment rate held steady at 4% because the reported labor force also increased by over 2 million workers.
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