Did the Labor Department Drastically Undercount August Payrolls?

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job_dissatisfaction_2The U.S. Labor Department issued its August Employment Situation report on Friday, and the numbers were so weak that many investors and economic watchers must be wondering if the numbers were simply wrong. After all, weekly jobless claims and monthly payrolls reports come with revisions at the next report more often than they do not.

There is the notion that the Bureau of Labor Statistics (BLS) computer systems upgrades in the past led to many off-reports and wide revisions. Amazingly, there doesn't even have to be accusations of negligence, manipulation or conspiracy to wonder if the Labor Department was just wrong in its payrolls calculations.

Nonfarm payrolls for August were listed as having risen by only 142,000, far less than the Bloomberg estimate of 230,000. This was down from July's reading of 209,000 and much further south than the 298,000 in June and 229,000 in May. Private sector payrolls came in at only 134,000, down from the estimate of 220,000 and down from the previous month's 198,000.

The question may not be about what happened to all the new hiring, but whether the number was wrong or whether it was so weak due to exceptional circumstances. Could the BLS simply have been wrong or had a lag on its reporting?

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Note that both June and July have had revisions of a positive 15,000. It is at least possible that those revisions acted as a "take away from the next report" in comparison.

One issue that may have played a role was Labor Day coming on September 1 this year. That means that all those travelers who took the traditional week's vacation ahead of the holiday, many of whom may have been the bosses or hiring agents, missed a full calendar week of August rather than just two or three days of the month.

Another exception could have been that August is traditionally not the strongest month for new hiring efforts. Too many people are cramming in last-minute vacations from the pool of applicants and those in charge of hiring decisions. It is also affected by back-to-school trends.

Another issue is that August is generally the end of seasonal issues around auto sector rotation. The BLS said specifically: "Motor vehicles and parts lost 5,000 jobs in August, after adding 13,000 jobs in July. Auto manufacturers laid off fewer workers than usual for factory retooling in July, and fewer workers than usual were recalled in August."

Another issue was that retail trade employment was down by 8,000 in August. The BLS also signaled that food and beverage stores lost 17,000 jobs, but said, "this industry was impacted by employment disruptions at a grocery store chain in New England."

There are many things to account for why the August payrolls were so weak. Some of the issues don't even have to have any negligence or conspiracy attached to them.

When we first saw the payrolls numbers on Friday morning, we assumed immediately that it was going to be great for the stock market. After all, it was growth, but weak enough that it would not act as any impetus for Janet Yellen and the other Fed members in the FOMC to begin their potentially bloody rate hike cycle any sooner than expected.

The DJIA futures had been down around 50 points and the S&P 500 futures were down more than five points ahead of the reports. It turns out that the S&P 500 Index closed up 10 points at 2,007.71 and the DJIA closed up almost 68 points at 17,137.36.

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