There has been quite a hullabaloo recently about the official unemployment numbers. There are a number of reasons for this – election year politicking, the general dubiousness of unemployment vs. underemployment distinctions, and so on – but none has captured the financial media as of late quite like a bigwig CEO questioning the veracity of recent numbers.
Former General Electric (NYSE:GE) honcho Jack Welch essentially came out and said the jobs numbers were incorrect – first in a Tweet that suggested President Barack Obama and his administration manipulated employment data for political gain, then with a follow-up opinion piece in the Wall Street Journal.
So if the unemployment rate isn’t really 7.8% right now… what’s the real number? And who’s really behind these mistakes and revisions and sneaky reporting tactics?
Well friends, here’s the sad reality of all economic data: It’s imperfect, it’s often based on small and imperfect sampling and it is always subject to revision and open to debate.
There is no grand conspiracy here. It’s simply the way these things work.
My biggest beef with Jack Welch is not his questioning of the jobs data. That kind of critical thinking is crucial for investors these days, since there seems to be mixed messages on everything from corporate earnings to China’s growth. It’s the specious assumption that there is some deliberate book-cooking going on — primarily to support his own view of the world.
But often the simplest explanation is the most logical one – and the simplest explanation is that the Bureau of Labor Statistics staffers are human and that a small group can never stand in perfectly for the whole.
That is not proof of malice, simply proof that there are no easy answers.
What’s really mind numbing is that Welch seems to think he’s done us all a favor by casting doubt on BLS numbers. As a result, my eyes have been crossing with a steady drumbeat of jobs data and analysis over the last few days including:
- A Financial Times report on underemployment and part-time employment and its overall impact on the economy – which turns out to be a negligible 0.2% to 0.5% of GDP according to the copious charts and data therein.
- Poll firm Gallup has proposed a new way to measure unemployment that involves payroll to population numbers, measuring the number of full-time American workers as a percentage of the total population instead of trying to measure the number of the unemployed in a vacuum. It’s novel, but the downside is it would essentially throw all previous reporting out the window so there would be little context for economists and investors.
- The Fiscal Times dives into the “demographic destiny” of America, and how the fact that older workers are staying employed longer and limiting opportunities for younger Americans is the defining issue of our labor market.
- A Washington Post article on the rise in part-time employment, exploring how many of the 8.6 million part-timers in America (up from just 4.5 million in 2007) are there because they want to be as opposed to settling for something instead of nothing. The gist: While it may not be full time work, the majority of those extra 4 million PT workers are garnering between 30 to 34 hours a week – which isn’t ideal, but still darn near full time.
I could go on, but most of these article are incredibly cerebral and probably only interesting to me.
The point here is that economic data – particularly when dealing with something as fluid as the short-term change in jobs or employment – can be difficult to nail down.
I’m not pointing this out to give the BLS a pass on this report… Simply to remind investors that even when you hear numbers on jobs or inflation or GDP growth reported as “fact,” you have to take those statistics with a heaping spoonful of salt.
And above all else, don’t let your preconceived notions about the economy or politics or the stock market color your judgement.
- At least some people are asserting that despite their imperfections, U.S. economic pollsters and statisticians remain the most reliable in the world (Fiscal Times)
- Welch’s full article defending of his criticism of the jobs data. (WSJ)
- Nobody at Thomson Reuters is crying now that Jack Welch is no longer writing for them (Bloomberg Businessweek)
Jeff Reeves is the editor of InvestorPlace.com and the author of “The Frugal Investor’s Guide to Finding Great Stocks.” Write him at firstname.lastname@example.org or follow him on Twitter via @JeffReevesIP. As of this writing, he owned a position in Alcoa but no other stocks named here.