Government efforts to smooth U.S. payroll changes from month to month may have masked an even bigger gain in October than the 151,000 reported today, according to Morgan Stanley’s David Greenlaw.
“This number today could have been 240,000,” Greenlaw, the investment bank’s chief fixed-income economist in New York, said in an interview. “Today’s report is a very positive signal and an indication that we are heading in the right direction.”
The August and September job counts were revised higher by a combined 110,000 workers, a report from the Labor Department in Washington showed. About 86,000 of the update was borrowed from October, which showed a bigger jump than the month normally does, Greenlaw said.
Combined with increases in the workweek and hourly earnings, the employment gain points to an economy that is strengthening into the end of the year. Economists at Morgan Stanley raised their tracking estimate for fourth-quarter growth to 3.5 percent from 2.5 percent today, in part due to an improving outlook for consumer spending.
Before adjusting for seasonal variations, the payroll count last month climbed by 919,000, the biggest October gain since 2004, today’s report showed.
“The October gain is the biggest we’ve seen in a while, so that strength was spread back to August and September,” Chris Manning, the national benchmark branch chief at the Bureau of Labor Statistics, said today in an interview. “If you reflected it all in October, it would have appeared that you had a big jump.”
The government’s model used to adjust the data for seasonal variations, like the normal buildup in retail hiring ahead of the year-end holidays or the swings in education payrolls associated with the start and end of school, also tries to prevent any single month from showing too large a gain or loss. Revisions to prior months are used to account for part of those unexpected variations.
“Is that a true jump, or a more gradual buildup?” asked Manning. The breakdown of the data didn’t flag any industry as having a particularly large gain last month, said Manning, indicating there were no unusual events to explain the increase and bolstering the case for a more gradual buildup.
What the model gives when employment is improving, it also takes away when times are bad. By that token, the plunge in payrolls in late 2008 and early 2009 following the collapse of Lehman Brothers Inc. was also smoothed over several months, said Greenlaw. The government’s so-called concurrent approach to adjusting the data for seasonal variations came into effect in mid 2003, he said.
Rather than raising questions about what happened in October to spur employment, today’s report made Greenlaw wonder what happened earlier in the year.
“The more puzzling question to me is what happened in May and June,” he said. “Things were going pretty swimmingly through April, everything was going in the right direction. I really don’t understand what happened as far as the summer slowdown goes.”
Gross domestic product expanded at an average 1.9 percent annual pace in the six months ended in September, compared with 4.4 percent in the previous two quarters.