ADP Grossly Overstates Job Growth for Last 12 Months by 419,000 Jobs

ADP has announced revised methodology to "enhance" its monthly job reports, no doubt because its prior numbers simply were grossly inaccurate.

Indeed, I stopped commenting on ADP numbers because I thought they were absurd.

Let's take a look at their revised methodology. Here is the ADP Jobs Report for September using the revised methodology.
"Private sector employment increased by 88,200 jobs from August to September, according to the September ADP National Employment Report®. The report, which is derived from ADP’s actual payroll data, measures the change in total U.S. nonfarm private employment each month on a seasonally adjusted basis. Last month’s employment estimate was revised down from 80,000 to 76,400 jobs."
Please note that last sentence. Compare to what ADP actually reported last month:
"Employment in the U.S. nonfarm private business sector increased by 162,000 from August to September, on a seasonally adjusted basis. The estimated gains in previous months were revised lower: The July increase was reduced by 17,000 to an increase of 156,000, while the August increase was reduced by 12,000 to an increase of 189,000."
Got that? September private business sector increased by 162,000 but now we see September was revised down to 76,400 from 80,000 (not 162,000 as actually reported).

Revision Matching

Check out this statement from ADP FAQs.

Using this methodology developed for ADP by Moody’s Analytics, our adjusted historical ADP National Employment Report data dating back to 2001 has a 96 percent correlation with the revised BLS numbers.

ADP revisions match BLS revisions over time. Lovely.

Spotlight on Revisions

ZeroHedge totaled up the ADP revisions for 2012 and concluded ADP "Cancels" 365,000 Private Jobs Created In 2012.

I conclude the same thing. However, things are even worse than Zerohedge states. Here is a chart that I put together of ADP revisions.

Note: numbers in charts and tables in thousands.

ADP Original Vs. ADP Revised Monthly Job Gains or Losses

click on chart for sharper image

ADP was way underestimating job gains in 2011 and way over-estimated gains in 2012.

The net effect was 136,000 jobs over 20 months (about 6,800 per month). However that is a very misleading way of looking at things as the following table shows.

Time Period Analysis

Time PeriodCumulative Miss
2011 Miss229.0
2012 Miss-365.1
Last 12 Months-419.1
Since Feb 2011-136.1

As you can see, I match ZeroHedge for 2012. However, for the last year, ADP was off by an even higher 419,000 jobs, nearly 35,000 jobs a month for an entire year!

For 2011, ADP was off in the other direction by 229,000 jobs, roughly 19,000 per month. Here is the complete table that I worked from.

ADP Data Points Table

DateADP RevisedADP OriginalRevisionCumulative Error

I note with amusement TrimTabs Says BLS Badly Missing Current Acceleration in Job Growth
TrimTabs Investment Research said today that the Bureau of Labor Statistics’ (BLS) hefty upward revision of its August job growth estimate proves that the BLS missed the important acceleration in job growth this summer because it relies on incomplete surveys that are frequently revised.

Trimtabs said the BLS’ initial estimate for August job growth was 96,000. Today, the BLS revised its August estimate upward 48% to 142,000 new jobs. Meanwhile TrimTabs estimate, based on real-time withholding tax data, said employment growth in August was 185,000.

TrimTabs reported the U.S. economy added 210,000 jobs in September while the BLS reported a job gain of only 114,000. TrimTabs said it expects the BLS to revise its September jobs estimate of 114,000 substantially higher next month.
I did not buy that story then, and I do not buy it now. More than likely, the BLS was catching up to misses earlier in the year, perhaps even 2011 vs. a genuine recent hiring spurt.

Obamacare Employment Analysis

I am sticking to what I said regarding Obamacare, especially Obama Slashes Four Hours Off Definition of "Full-Time" Employment

Additional Obamacare Employment Analysis

By the way, these ADP revisions suggest the stated unemployment rate is blatantly preposterous, something I say in every jobs report.

Mike "Mish" Shedlock

"Wine Country" Economic Conference Hosted By Mish
Click on Image to Learn More

Paul Krugman: Who Ordered This?

Paul Krugman notes that the happiness and well-being of 310 million people is at stake here:

Not The Election They Were Expecting: [I]t’s not the election Romney and the Republicans expected and wanted; but it’s also looking very different from what Democrats expected. What Romney & Co. expected was a simple rejection of Obama because of the weak economy…. [But]voters tend to react to recent trends, not the absolute level — and the economy has gotten better in some ways…. [And] people do remember the crisis of 2008, which they still blame on Bush, and remain willing to cut Obama substantial slack.

But… there’s more going on. The conventional wisdom — which I too bought into — was that Democrats were going to support Obama, but grudgingly and without much enthusiasm…. Republicans would show their usual unity and discipline, and at best it would be Obama by a nose. Instead, the Republicans appear to be in a shambles — while the Democrats seem incredibly united, and increasingly, dare I say it, enthusiastic….

How did that happen? Partly it’s because this has become such an ideological election — much more so than 2008. The GOP has made it clear that it has a very different vision of what America should be than that of Democrats, and Democrats have rallied around their cause. Among other things, while we weren’t looking, social issues became a source of Democratic strength…. And let me add a speculation: I suspect that in the end Obamacare is turning out to be a big plus, even though it has always had ambivalent polling. The fact is that Obama can point to a big achievement that will survive if he is reelected, perish if he isn’t; health insurance for 50 million or so Americans (30 million from the ACA, another 20 who would lose coverage if Romney/Ryan Medicaid cuts happen) is enough to cure people of the notion that it doesn’t matter who wins…. [I]t looks as if voters are rejecting the right’s whole package, not just the messenger.

NMHC Apartment Survey: Market Conditions Tighten, Growth Rate Moderates

From the National Multi Housing Council (NMHC): Apartment Market Expansion Continues as Growth Rate Moderates
Apartment markets improved across all areas for the seventh quarter in a row, but the pace of improvement moderated according to the National Multi Housing Council’s (NMHC) Quarterly Survey of Apartment Market Conditions. The survey’s indexes measuring Market Tightness (56), Sales Volume (51), Equity Financing (56) and Debt Financing (65) all measured at 50 or higher, indicating growth from the previous quarter.

“Even after nearly three years of recovery, apartment markets around the country remain strong as more report tightening conditions than not,” said NMHC Chief Economist Mark Obrinsky. “The dynamic that began in 2010 remains in place: the increase in prospective apartment residents continues to outpace the pickup in new apartments completed. While development activity has picked up considerably since the trough, finance for both acquisition and construction remains constrained, flowing mainly to the best properties in the top markets.”
Market Tightness Index declined to 56 from 76. Marking the 11th straight quarter of the index topping 50, the majority (62 percent) reported stable market conditions. One quarter reported tighter markets and 14 percent indicated markets as looser.
Apartment Tightness Index
Click on graph for larger image.

This graph shows the quarterly Apartment Tightness Index. Any reading above 50 indicates tightening from the previous quarter. The index has indicated tighter market conditions for the last eleven quarters and suggests falling vacancy rates and or rising rents.

This fits with the recent Reis data showing apartment vacancy rates fell in Q3 2012 to 4.6%, down from 4.7% in Q2 2012, and down from 8.0% at the end of 2009. This was the lowest vacancy rate in the Reis survey in over 10 years.

Even though multifamily starts have been increasing, completions lag starts by about a year - so the builders are still trying to catch up. There will be many more completions in 2012 than in 2011, increasing the supply.

As I've mentioned before, this index helped me call the bottom for effective rents (and the top for the vacancy rate) early in 2010 - and will probably be useful in indicating when the vacancy rate will stop falling.

‚The Role of Money in New-Keynesian Models‘

Should New Keynesian models include a specific role for money (over and above specifying the interest rate as the policy variable)? This is a highly wonkish, but mostly accessible explanation from Bennett McCallum:

The Role of Money in New-Keynesian Models, by Bennett T. McCallum, Carnegie Mellon University, National Bureau of Economic Research, N° 2012-019 Serie de Documentos de Trabajo Working Paper series Octubre 2012

Here's the bottom line:

...we drew several conclusions supportive of the idea that a central bank that ignores money and banking will seriously misjudge the proper interest rate policy action to stabilize inflation in response to a productivity shock in the production function for output. Unfortunately, some readers discovered an error; we made a mistake in linearization that, when corrected, greatly diminished the magnitude of some of the effects of including the banking sector. There seems now to be some interest in developing improved models of this type. Marvin Goodfriend (MG) is working with a PhD student in this topic. At this point I have not been able to give a convincing argument that one needs to include M. ...
There is one respect in which it is nevertheless the case that a rule for the monetary base is superior to a rule for the interbank interest rate. In this context we are clearly discussing the choice of a controllable instrument variable—not one of the "target rules" favored by Svensson and Woodford, which are more correctly called "targets." Suppose that the central bank desires for its rule to be verifiable by the public. Then it will arguably need to be a non-activist rule, one that normally keeps the instrument setting unchanged over long spans of time. In that case we know that in the context of a standard NK model, an interest rate instrument will not be viable. That is, the rule will not satisfy the Taylor Principle, which is necessary for "determinacy." The latter condition is not, I argue, what is crucial for well-designed monetary policy, but LS learnability is, and it is not present when the TP is not satisfied. This is well known from, e.g., Evans and Honkapohja (2001), Bullard and Mitra (2002), McCallum (2003, 2009). ...

‚Economic Effects of Hurricane Sandy‘

Jim Hamilton on the economic damage from hurricane Sandy:

... One parallel to consider is the devastation from Hurricane Katrina in 2005. In addition to the short-run dislocations, this ended up causing lasting damage to offshore oil-producing infrastructure. An optimist might have thought this would create all kinds of new jobs trying to rebuild. The actual experience was not so cheerful.


Seasonally adjusted nonfarm employment in Louisiana, 2004:M1 - 2007:M12, in thousands of workers. Vertical line marks Hurricane Katrina in August 2005. Data source: BLS.

The Wall Street Journal reports that IHS estimates that Hurricane Sandy could reduce the 2012:Q4 U.S. real GDP growth rate by 0.6 percentage points at an annual rate. I'm not sure how one comes up with that kind of number. But I am persuaded this was not a good thing for the U.S. economy.

No Daily Wang Today…

Sam Wang's Princeton Electoral Consortium website is still hosed...

I was wrong: there is a Daily Wang today. They got something back up:

‎election princeton edu

They give 19-1 odds against Romney if you are ignorant of background fundamentals, 99-1 odds against Romney if you make reasonable prior assumptions about background fundamentals and are Bayesian.

Me? I think Sam is doing something like using the Gaussian copula here--the odds are odds within the model, and the model is not the world. I'm with Nate, who still gives Romney a 1 in 5 chance.

Back To Business

That’s it – I don’t want to hear another word about hurricanes, Halloween, or presidential elections. Quite frankly I’ve had more than my fill at this point and the sooner we get back to business the better. Of course right after Halloween we will have to put up with all that X-Mas misery. How damn jolly can you people get every year? And stop the singing already – it’s like cryptonite! Anyway, we’ve got coin to bank – plenty of of setups out there if you pay attention:

Silver right at a NLBL which conveniently expires today. It’s been keeping a low profile for the past week avoiding any contact. Meanwhile on the hourly we are touching resistance but it’s looking strong. I would prefer a pass by the NLBL tomorrow which would lead us higher.

Copper – here’s the daily and the weekly as we are touching support on both. Great long setup right now – a failure this Friday may lead us lower.

Bonds – the 30-year is pretending to look busy. I see a great setup here at the 100-day SMA. The 25 has been nicely cleared and this should be the last hurdle before a bust higher. If it fails (i.e. we close below today or drop back below in the next two days) then I want to be short here.

More where that came from – please join me in my hurricane proof trading lair:

More charts and non-biased commentary below for anyone donning a secret decoder ring. If you are interested in becoming a Gold member then don’t waste time and sign up here. And if you are a Zero or Geronimo subscriber it includes access to all Gold posts, so you actually get double the bang for your buck.

Please login or register for Zero Data Feed (non-recurring) or Zero Data Feed (recurring) or ES Gold (non-recurring) or ES Gold (recurring) or geronimo/ES (recurring) to view this content.


Fed: Some domestic banks "reported easing standards", Many banks seeing "strengthening of demand"

From the Federal Reserve: The October 2012 Senior Loan Officer Opinion Survey on Bank Lending Practices
In the October survey, small fractions of domestic banks, on net, reported easing standards for business lending and some categories of consumer lending over the past three months. Respondents reported little change in residential real estate lending standards on balance. Significant fractions of banks reported a strengthening of demand for commercial real estate loans, residential mortgages, and auto loans, on balance, while demand for most other types of loans was about unchanged.
Within consumer lending, modest fractions of respondents continued to report an easing of standards on credit card and auto loans; respondents indicated that their standards on other types of consumer loans were about unchanged.
Special questions on lending to and competition from European banks. The October survey also included questions about European banking institutions and their affiliates that have been asked on several recent surveys. Respondents to the domestic and foreign survey again reported that their lending standards to European banks and their affiliates had tightened over the past three months, but the fractions of respondents indicating that they had tightened standards declined significantly between the July and October surveys, on net. As in the July survey, domestic banks reported that they had experienced little change in demand for loans from European banks and their affiliates and subsidiaries.

Of the respondents that indicated that their banks compete with European banks for their business, a slight majority reported that they had experienced a decrease in competition from European banks over the past three months, but the decrease did not appreciably boost business at their banks. A smaller but significant fraction of respondents indicated that a decrease in competition from European banks had increased business at their banks to some extent.
emphasis added
CRE Standards Click on graph for larger image.

Here are some charts from the Fed.

This graph shows the change in demand for CRE (commercial real estate) loans.

Increasing demand and some easing in standards suggests some increase in CRE activity.

CRE DemandThe second graph shows the change in demand for residential mortgages. Note the break in the graph - in recent years, the Fed has asked about demand for different types of mortgages.

The survey also has some discussion on Europe. Whereas domestic banks are easing standards slightly and seeing an increase in demand, they are tightening standards for lending to European banks.

No Fear of a Pinocchio Nose: Romney’s Welfare Lie

Romney continues to disrespect the mainstream press -- he appears to have no fear that they can expose blatant falsehoods in a way that might cost him votes:

The ignominious return of the welfare lie, by Steve Benen: For much of August, Mitt Romney proudly embraced as obvious a lie as has ever been heard in presidential politics. The Republican insisted -- in speeches, interviews, and ads -- that President Obama had "gutted the work requirement" in welfare law. He was blatantly lying, but didn't care.
Over the last month or so, Romney moved on to different lies, most notably about the auto industry, but in the campaign's closing days, the racially-charged welfare lie has made a comeback. ...
This unannounced attack ad, running in several key states,... argues at the outset that Obama "gutted the work requirement for welfare." This isn't just another lie; it's presidential politics at its most disgusting.
What's more, Romney isn't relying on misleading technicalities, or hiding in some ambiguous gray area between fact and fiction. This is just a demonstrable, racially-inflammatory lie -- and the candidate knows it. ... And yet, Romney keeps repeating it. ...
With this ad, Romney is once again carefully extending his middle finger in reality's face. He doesn't care about getting caught -- his campaign has already said, "[W]e're not going to let our campaign be dictated by fact checkers" -- he just cares about what he can get away with as part of his quest for power.
This is the national political scandal of 2012, whether the political world wants to admit it or not.
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