Friday, July 06, 2007

Working on it 

The new payroll figures show a fairly sharp revision in April and May employment along with a healthy increase in June. I always keep an eye out for revisions, as they tell us something we didn't expect. I'm inclined to think this would move up some GDP estimates for the second quarter by as much as 0.2%, if you believe those gains are for real.

The hard part to figure is how residential construction employment can do so well when all we ever hear is how housing is being hit hard (I've said it myself.) The WSJ blog reports this quote from Stephen Stanley of RBS Greenwich Capital,
The persistent weakness in nonresidential construction payrolls has been every bit as puzzling as the absence of large cuts in the residential sector, though it has not gotten much (any?) fanfare. We continue to believe that the reporting is imperfect and that some housing job losses are showing up in nonresidential while some nonresidential hiring is showing up in residential.
James Hamilton reported on some of these difficulties last month. Calculated Risk argued in May that the residential data was too strong. But CR reports today that residential construction right now is flat (as we are also observing here in St. Cloud.)

I won't say "there's less here than meets the eye", but I do say that we need another report or two to confirm a pickup from a lackluster Q1 number on GDP.

UPDATE: Hamilton posts this PM and adds to the puzzle:

Another possibility raised by Calculated Risk is that the BLS establishment survey is underestimating the number of construction firms that have permanently gone out of business. Stone & McCarthy further argue that BLS is also missing the behavior of small firms in this sector. I had been leaning toward such hypotheses as long as the BLS household survey, which is not subject to these same problems, was signaling slower employment growth than the nonfarm payrolls. I still believe that we will eventually (perhaps next fall) see these current construction employment numbers revised down. But the strength we're seeing in the separate household survey numbers the last two months suggests to me that these biases may not be as severe as I was earlier assuming.

This increases my uncertainty over my public statements on the local economy over the weekend. See also David Altig for more links and head-scratching.