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Thursday, February 02, 2012

January Employment Report Revisions and Issues

by Calculated Risk on 2/02/2012 03:55:00 PM

Tomorrow (Friday) the BLS will release the January Employment Situation Summary at 8:30 AM ET. Bloomberg is showing the consensus is for an increase of 135,000 payroll jobs in January, and for the unemployment rate to remain unchanged at 8.5%.

Here are a few revisions and issues to look for tomorrow:

Establishment Data: "With the release of January 2012 data on February 3, 2012, the Current Employment Statistics (CES) survey will introduce revisions to nonfarm payroll employment, hours, and earnings data to reflect the annual benchmark adjustment for March 2011 and updated seasonal adjustment factors. Not seasonally adjusted data beginning with April 2010 and seasonally adjusted data beginning with January 2007 are subject to revision."

The preliminary benchmark was for an increase of 192,000 total nonfarm payroll jobs, and 140,000 private sector jobs as of March 2011. The annual revision is benchmarked to state tax records, and usually the preliminary estimate is pretty close to the final benchmark estimate.

This will be the first upward revision since 2006.

• Household Survey: "Effective with the release of The Employment Situation for January 2012 scheduled for February 3, 2012, population controls that reflect the results of Census 2010 will be used in the monthly household survey estimation process. Historical data will not be revised to incorporate the new controls; consequently, household survey data for January 2012 will not be directly comparable with that for December 2011 or earlier periods. A table showing the effects of the new controls on the major labor force series will be included in the January 2012 release."

• Issue: Several analysts have noted that it appears the seasonal adjustment for "Transportation and warehousing" over-counted employment in December by about 42,000 and this should be unwound in January. So December payroll growth was probably overstated, and January will be understated.

• And on the unemployment rate from Gallup:

The U.S. government's January unemployment rate that it will report Friday morning will be based largely on mid-month conditions. At mid-month, Gallup reported that its unemployment rate had declined to 8.3%, based on data collected through the 15th of the month.

The mid-month reading normally provides a pretty good estimate of the government's unadjusted unemployment rate for the month. However, the government is revising its methodology beginning with the January 2012 report. As a result, the government notes, "household survey data for January 2012 will not be directly comparable with that for December 2011 or earlier periods." In turn, this makes estimating the government's unemployment rate for January even more difficult than usual.
The Gallup survey hasn't predicted the BLS "not seasonally adjusted" unemployment rate very well, but this suggests a possible unemployment rate surprise. January has the largest downward seasonal adjustment, and usually the seasonally adjusted rate is 0.5% to 0.7% lower than the NSA rate. If the headline unemployment rate is 8.5% (as analysts expect) then I'd expect the NSA rate to be in the 9.1% range - not 8.3% as the Gallup survey found.