Payrolls were doubly strong in the US last month. April’s payrolls gained a solid 165 thousand. But the real story was in the upward revisions to March and February by a combined 114 thousand. That adds up to 635 thousand jobs over the last three months, nearly 25% more than the consensus had been expecting. And that’s before the benchmark revisions.
In the initial release, the government relies heavily on assumptions and estimates about business hiring trends. The statisticians then update the data as they are able to collect more information. Typically, each month’s release will include revisions to the prior two months and each year there will be benchmark revisions to the prior five years or so.
Since the current economic expansion began in July 2009, payrolls as originally reported have averaged just 75,000 each month (the light blue bar on the left). After the initial monthly revisions are included, the average monthly gain improves to 105 thousand, much better but still sub-par historically. Including all the benchmark revisions, payrolls during expansions since 1950 have added 175 thousand jobs each month. As it happens, April’s performance was just under the historical average â€¦ and that’s before any revisions at all.
Even after all the revisions are made, the labor market in this cycle was slow to get traction, partly a reflection of how much damage was done during the recession. While there’s a long way to go, the pace of recovery in the labor market is finally closer to the norm as the data picks up steam, including the revisions. So the first release of the payroll data should always be taken with a grain of salt: payrolls can often have the appearance of slowing because the initial release is typically revised up when the economy is growing. So it’s often better to ignore the latest release and focus on the direction of the revisions.
Find more articles like this at www.mcalindenresearch.com
Warren Hatch, PhD, CFA
Chief Investment Strategist
McAlinden Research - a division of Catalpa Capital Advisors, LLC