[lbo-talk] Fwd: ML - Macro-Economics: The Employment Benchmark Revision: A New Event

[Doug Henwood]

>  >From Carrie_Gray at ml.com Tue Oct  5 08:28:18 2004
>Delivered-To: dhenwood at panix.com
>Subject: ML -  Macro-Economics: The Employment Benchmark Revision: A New Event
>Date: Tue, 5 Oct 2004 08:28:07 -0400
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>Thread-Topic: Macro-Economics: The Employment Benchmark Revision: A 
>New Event - USA - 4pp
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>From: "Gray, Carrie (RSCH)" <Carrie_Gray at ml.com>
>To: "Rosenberg, David (RSCH)" <david_rosenberg at ml.com>
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>Macro-Economics: The Employment Benchmark Revision: A New Event
>
>Link to full report incl. important disclosures*
><http://www.cwes01.com/9093/24013/ds/03513252.pdf>http://www.cwes01.com/9093/24013/ds/03513252.pdf
>
>The October 8th employment report will include a preliminary 
>estimate of the size of the annual benchmark revision to the payroll 
>survey set to take place next February.  To be sure, there is some 
>scope for an upward benchmark revision.  However, the size of the 
>revision is likely to fall short of expectations.  We see the 
>revision as no more than 50k-100k (which would be 4k-8k per month), 
>with even a possibility that the revision will be negative, as it 
>has been in the past three years.
>
>Every year, the BLS benchmarks the payroll establishment survey with 
>a more complete data set from the state unemployment insurance 
>programs.  These data more accurately capture the hiring of newly 
>created firms and firms that go out of business (known as the Birth 
>/ Death adjustment).  The net creation of new firms tends to move 
>with the business cycle, with more firms being created and less 
>destroyed during business cycle upturns.
>
>Previous benchmark revisions, from 1994 to 2000 were quite sizable. 
>In fact, payrolls were revised higher by almost 0.7% (almost 800k) 
>in 1994, with much of the revision stemming from poor handling of 
>the birth / death adjustment.  Since then, new methodology by the 
>BLS has made the benchmark revisions much smaller.  Over the past 
>three years there have been small downward revisions ranging from 
>0.1% to 0.2%.
>
>Since net business creation turned up over 2003 it is possible that 
>the BLS's birth / death adjustment has not fully incorporated the 
>pace of current economic activity.  For that reason, we expect a 
>small upward revision to be announced on Friday.  However, 
>extrapolating the state unemployment program employment data, for 
>which data are only currently available up to December 2003, and 
>using the recent trends in private sector payroll growth, leaves 
>open the possibility of a small downward benchmark revision (Chart 1 
>on the following page).
>
>Many are hoping this Friday's revisions will help resolve the 
>puzzling and persistent gap between the job growth reported in the 
>household survey (3.3 million new non-farm jobs created since 
>November 2001) and the payroll survey (604k new jobs created over 
>that same period).  This gap, however, is more likely explained by 
>an over counting in the household survey.  The household survey uses 
>Census Bureau population controls that may be over counting 
>immigration flows into the US.  We believe that the gap in 
>employment trends between both surveys will likely remain relatively 
>wide until the population issues are resolved.
>
>
>Merrill Lynch does and seeks to do business with companies covered 
>in its research reports.  As a result, investors should be aware 
>that the firm may have a conflict of interest that could affect the 
>objectivity of this report.  Investors should consider this report 
>as only a single factor in making their investment decision.
>
>
>
>Carrie Gray
>Merrill Lynch
>Research Communications & Media Relations
>4 World Financial Center
>New York, NY 10080
>Tel: 212-449-2845
>Fax: 212-449-4665
>E-mail: carrie_gray at ml.com
>
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