Friday, June 9, 2017

Is the employment situation weaker than we thought? Probably not

 - by New Deal democrat

Via Menzie Chinn of Econbrowser Wells Fargo describes The Quarterly County Employment and Wages report as "a detailed count of employment and wages derived from the unemployment insurance tax rolls and serve as the basis for the annual revisions to the monthly employment series."

And the big news is, it declined -- substantially -- in the last quarterly report, released this week.  Is the employment and wage situation a lot weaker than we thought?  Probably not.  Here's why.

Since it isn't a small sample, but is derived from the total data, I would expect it to show a smooth progression, even at turning points.  But that's just not the case.

To show you how volatile the YoY measure is, here is the last eight quarters of the YoY change in average weekly wages, with the nominal $ amount: 

Q1 2015 +2.1% $1048
Q2 2015 +3.0% $968
Q3 2015 +2.6% $974
Q4 2015 +4.4% YoY $1082
Q1 2016 -0.5% YoY $1043
Q2 2016 +2.2% YoY $989
Q3 2016 +5.4% YoY $1027
Q4 2016 -1.5% YoY $1067

I could do a similar exercise with previous years.  The simple fact is, there is just simply enormous volatility that is difficult to reconcile with reality in this series. [There is huge seasonal volatility, which is why the YoY change is so important. While FRED does have this info graphically for each of the approximately 400 metro areas in the survey, they don't carry the national average!]

By contrast, here is a graph of average weekly wages from the monthly employment report:

And here is the graph of the quarterly report of "usual median weekly wages":

Bottom line: the QCEW is and has been for years a volatile outlier both to the upside and downside.  Until someone can explain why the QCEW is so volatile, I am discounting it.  In the meantime, should any Doomer trumpet the most recent report (as a few did with the Q1 report), google their reporting on any of the positive numbers.  Hint: you won't find it.