Kudlow and the Jobs Report

If you ever get a chance to see CNBC do the jobs report analysis at 5:30 AM PST / 8:30 AM EST on the first Friday of every month, it's really quite a show - Larry Kudlow gets up early and joins Mark Haines and Jim Liesman on Squawk Box. Kudlow's guest appearances remind me of one of those 80's prime time shows (Fantasy Island?) where at the end of the opening credits, after introducing the regular cast, and after a dramatic pause, they go full screen with "and Guest Starring Lee Majors".

This morning's jobs report came in at +110,000 - the mind-numbing raw data is available at the Bureau of Labor Statistics with summary data here. Conventional wisdom is that it takes 150,000 new jobs each month just to keep pace with the increase in population. Expectations were in the 220,000 range, and given that we are supposedly in an economic recovery, this number was a bit disappointing - given that recent initial unemployment claims have ticked up, perhaps this number is a bit worrisome.

Mark Haines seems to be the only one on this show who does any real thinking, as demonstrated when Kudlow is first asked to pontificate:

Kudlow: "I myself believe, and have long believed, that we put much too much stock in these numbers when we start to parse them through, because the economy is very sound".

Haines: "Suddenly, when the number is not what you want, it doesn't matter"

Kudlow: "I've said this all along, look, we could play games - the household number was up 357,000 - the trend is in place, you've averaged 198,000 for the last twelve months, this number may bring that down a tad, but it is statistically insignificant. Wages were higher, unemployment was lower at 5.2. This is a very healthy number, whether it meets the expectations of the economic consensus, in my economic opinion, is not nearly as important as the fact that the economy is healthy."

Haines: "The unemployment rate is a different survey though, isn't it?"

Liesman: "It's a different survey, we're providing that number that Larry just gave us - 357,000. The thing that I like to look for Mark, is minus signs and plus signs, and I have to say I did not see a lot of minus signs..."

Well, that was interesting. It goes on like this for a while - Haines being the lone thinker who is consistently and forcefully refuted by Kudlow and Liesman spewing statistics then concluding their argument with something like "the fact is that the economy is healthy" ... bubblevision at it's best.

Relevant to the discussion, but conveniently omitted, are the declining quality of jobs and the general agreement that the unemployment report (5.2% unemployment rate and 357,000 new jobs - the positive news for the day) is fundamentally flawed and shouldn't be used at all ... Haines may have been trying to bring this up but was quickly cut off by Liesman.

Also not mentioned in the CNBC coverage is the birth/death model adjustment that is made by the BLS. If you look at the adjustment that is used this month it comes in at a whopping +179,000. No one really understands how this adjustment works and the BLS ain't tellin' - on their FAQ, about the only thing that they do tell you is that this goes into the reported number (110,000 this month), but you can't just subtract it from the reported number to find out the result of last months phone survey - it's much more complicated than that. Argghh!

Note: The birth/death model methodology was significantly altered about eight months before the 2004 election, after the White House publicly complained that the payroll statistics didn't accurately reflect the jobs created by new businesses - I'm sure there's no connection between these two events.