The positive gains in employment in the U.S. are currently being undereported and will eventually be revised up to show greater strength, according to Deutsche Bank’s Joseph LaVorgna.
LaVorgna’s argument is based on his assessment of recent economic growth periods in the U.S. Seven out of eight of those periods saw upward revisions to employment numbers.
But it’s not just about history, according to LaVorgna:
The Household Survey queries individuals on their employment situation and is the source data from which the unemployment rate is derived. The Establishment Survey queries firms on the size of their workforce and is the data set that the payroll figures are based on. While the sample size of the former is only 60k compared to the latter’s 400k, it has the advantage of changing every month. This is critical, because at economic turning points, the Household Survey can do a better job tracking employment than the Establishment Survey because hiring by newly formed businesses or self employment are not captured by the Establishment Survey, which uses a static sample set. Additionally, the not-seasonally adjusted data in the Household Survey are not revised. Over the past three months, the population-adjusted Household Survey has shown 1.130 million in job creation compared to 0.478 million in the Establishment Survey, a large 0.652 million discrepancy.
The employment recovery may be much stronger than it seems at the moment, and, if history is correct, there’s no reason to believe these numbers won’t be revised higher soon.
Note, only in the 1980s did downward revisions outweight upward.
Photo: Deutsche Bank
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