The most closely followed economic report in the world is arguably the Bureau of labour Statistics’ employment situation report, aka the jobs report.
On Friday, the monthly jobs report told us that U.S. companies added 175,00 new jobs and the unemployment rate ticked up to 7.6%.
Markets move and policymakers mobilize on this report, which contains what amounts to be pretty inaccurate numbers.
In his new US Economics Weekly report, Deutsche Bank’s Joe LaVorgna reminds his clients that the jobs report gets revised many times.
Substantial revisions are the norm rather than the exception. The monthly nonfarm payroll figures are revised at least seven times. It happens twice in the two months immediately following the initial release and then once every year during the annual benchmark revision, which extends back five years. This means the final results often look very different from what was initially reported. We have found that the average monthly revision to nonfarm payrolls without respect to sign has historically averaged 90k. Additionally, a one standard deviation move from the initially reported number and the final payroll figure is 113k. These are substantial differences, especially considering the fact that financial markets often react to surprises which are often much smaller relative to the consensus forecast. In the chart below, we show the current change in nonfarm payrolls compared to its initially reported value.
“As a general rule of thumb, payroll revisions tend to be upward during economic recoveries/expansions and downward during economic recessions,” added LaVorgna. “Since the economy grows much more often than it declines, revisions on balance are positive.”
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