Tuesday, July 10, 2007

If you haven't paid attention, you're counting something 

...that ain't necessarily so.

Mike Shedlock has been banging the phantom construction employment drum for some time, and yesterday's post asks a really good, hard question.
...the household survey has taken a big hit in payroll growth over the past 6 months, averaging a mere 45,000 jobs while the establishment survey is averaging 145,000 jobs a month.

Given that the unemployment rate is based off the household survey, and that the unemployment rates has not risen, we have yet another discrepancy in the BLS data. The game (lie) here is to lower the participation rate. If fewer people are looking for jobs then the unemployment rate does not rise.

But I don't believe we can account for all of these discrepancies because of illegal aliens. If Stone is correct that a relatively small number of construction companies are surveyed, then one might expect those companies to be the larger ones (major home builders like Lennar, Meritage, KB Homes, etc). Now I do not doubt for a second that those companies hired illegal aliens, but what I do doubt is that they were undocumented. The difference being someone receiving pay under the table with no taxes withheld vs. someone receiving a payroll check using a bogus Social Security number (and therefore showing up on the establishment survey).

More to the point, shouldn't the slowdown in temporary workers in conjunction with the slowdown in starts and permits have affected the model at the BLS?

That last question is key to understanding where the problem with the numbers is. Somehow, for some unexplained reasons, the model at the BLS is assuming a creation of construction businesses even as temporary workers are being let go, even as homebuilding starts and permits have plunged, and even as the GDP fell to a crawl at .6%.
The birth/death model is just causing a lot of problems right now, and until they start benchmarking more frequently off the Quarterly Census, I don't see it stopping.

Freddie Mac says the problem isn't getting any better.
While a steady job market and growing national economy may help limit the downside risks to housing prices, several risks � the elevated levels of homes for sale, recent increases in mortgage rates, and rising foreclosures of subprime borrowers � point to continued weakness in the months ahead.
(h/t: Real Time Economics) And at least at D.R. Horton, it's getting worse...