Friday, August 07, 2009

Timing is everything 

In the post below this one I mentioned that we have had a very odd summer in terms of automotive employment. Shutdown of 2009 model year production began sooner as inventories built up:
Manufacturing employment fell by 52,000 in July and has declined by 2.0 million since the recession began. In motor vehicles and parts, fewer workers than usual were laid off in July for seasonal retooling. As a result, the estimate of employment for the industry rose by 28,000 after seasonal adjustment. In large part, July's seasonally-adjusted increase reflects the fact that previous job cuts had been so extensive that there were fewer workers to lay off during the seasonal shutdown..
Golfers can understand it this way: I carry a 31 handicap; I'm a lousy golfer. I go out and shoot a 95. This is a lousy score for most people, but with my handicap (on an average course) it's a 64. On net, I'm Tiger Woods. But if you watched me play that day, you'd think I was less than mediocre.

Let me show you this on a graph:

That is a NOT seasonally adjusted graph for production workers only, grabbed from BLS. You can see the first half of each year ramps down fairly slowly, then drops like a stone in July. In the last four years the unadjusted change between June and July was 26,600 in 2005, 30,100 in 2006, 28,700 in 2007 and 18,000 in 2008. 2008, unlike the other years, had a drop in motor vehicle employment between January (a normal inventory adjustment month when workers don't mind being on leave because Detroit isn't the best place to be that month) and June. But this year we've already had an unadjusted drop of 21,900 production workers in motor vehicles. If they had already cut them and now had no more to cut in July, when you put the adjustment to autos you get an increase. In short, if you have already hit your thumb with a hammer six times, the seventh time doesn't hurt so bad if you don't add force. But it's still damaging. Take that away and add in the measurement errors and the whole meme of good news in this report is doubtful.

From the left, Robert Reich is observing that "the economy is getting worse more slowly." Justin Fox is even more negative and picks up the seasonal effect as well:
The above numbers are seasonally adjusted�which is necessary to do, but adds lots of potential for weird statistical quirks like the auto employment increase. Without the seasonal adjustments, employment fell a whopping 1.3 million in the month. And there were 5.9 million fewer jobs in July 2009 than in July 2008.
And the number of people in the labor force fell 422,000 last month, which is the real reason the unemployment rate declined.

So the combination of timing of past layoffs and the departure of people from the labor force may account for the news today. It has little to do with stimulus, yet.