Ready for a plunge in construction jobs?

When the labor report for March came out about a month ago, it was noted here that the combination of erratic weather and seasonal adjustments could produce a quite unexpected result next month. Well, the April data comes out tomorrow morning - get ready for a possibly very big surprise to the downside in construction hiring.

Here's the chart along with the pertinent discussion from a month ago.

So, in the March report, a total of 181,000 new construction jobs were reported/estimated and of that total 27,000 were derived from the birth/death model, meaning that 154,000 new construction jobs were reported by state unemployment insurance agencies.

The seasonally adjusted total, however, only comes to 56,000 and herein lies the intrigue. As shown in the chart above, March is the first month of the year when the seasonally adjusted number is less than the reported/estimated number, the prior six months always showing the opposite effect in order to help "smooth" out the data (e.g., January 2007 saw 289,000 construction jobs lost, but the seasonally adjusted total was +34,000).

What does this mean?

This is a particularly strange time of the year as seasonal adjustments combined with erratic weather patterns can play havoc with the data. The next three months of construction hiring will provide a much clearer indication of what is in store for the rest of the year since, understandably, April through June are the peak months for construction hiring and are seasonally adjusted downward more than any other months.

If the recent cold snap depresses construction hiring in parts of the country for next month's report, look for a truly horrible construction number in the April data.

According to the BLS website, the establishment survey is based on data collected by the labor department from state employment agencies during the week that contains the 12th of the month.

Looking at historical weather data at the informative Weather Underground website, it's easy enough to see that the survey week in March was a lot warmer than the survey week in April in the entire Northeast.

My hometown in Pennsylvania had highs in the 60s in March but during the same week in April, high temperatures only reached the 40s.

Whatever number is arrived at after the BLS takes their state agency sample and factors in the birth/death adjustment, according to the chart above, roughly 210,000 will be subtracted from that total to get the seasonally adjusted number.

Stated another way, if actual construction hiring was flat, the seasonally adjusted number will be minus 210,000.

Given the continuing problems faced by homebuilders with inventory piling up at alarming rates amid tighter lending standards and an increasingly skittish group of homebuyers, get ready for a plunge in construction hiring tomorrow.

Then again, given the recent history of employment reporting by the Bureau of Labor Statistics, don't be surprised if another 56,000 jobs are added.