Trend-Cycle Or Payrolls?

On Friday, February 2, 2001, the BLS reported stellar headline numbers for its Employment Situation release. Preliminary estimates for the Establishment Survey suggested US payrolls had gained +268k in the month of January. To put it in perspective, that would equate to +324k in today’s population, or a bit better than the latest figure.

The economic climate of the time was one of great uncertainty. Over the previous months, it appeared as if the US economy had begun exhibiting symptoms consistent with a downturn, maybe recession. The BLS had reported a blowout number for September 2000, and then several months in the 100s.

January 2001’s +268k coming out in early February was somewhat reassuring that weakness might just be noise. But in the age of the maestro, what would that mean? Good news was bad news, as CNNMoney anchor Stuart Varney told his TV audience after what was a chaotic Friday of stock trading.

Our top story tonight: the most damaging session on Wall Street since the first tumultuous days of this year. Stocks retreated all across the board, investors haunted by tech profit fears and a report on jobs that defied really easy analysis. The unemployment rate did rise in January, but far more jobs were added to payrolls than expected. The upshot: some fear the Federal Reserve may not slash interest rates as aggressively in the coming months.

If you go looking in the current data set for the Establishment Survey series, you won’t find that +268k for January 2001. What you will see instead is -25k. Wall Street had every reason to be worried about the jobs report, just not in the way it was presented. The big problem wasn’t Greenspan’s Fed being reassured by blowout labor numbers, it was that they, and he, had it all wrong.

The NBER would declare seven months into it that the dot-com recession began in March 2001 – just a month after that last huge BLS report. The estimates the government agency presented fell apart due to something called trend-cycle. This is the reason why there is a -25k where +268k used to be.

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