Traders will be confronted with a number released by the Labor Department today at 7:30am CT. Instantaneously, they, or their computers, will make a decision on whether to buy, sell or hold the market. Trillions of dollars will change hands at that exact moment.
Because of all the different waves in the world economy, many skeptics are positing that the Labor Department is massaging the number to make the situation look better than it actually is. Conspiracy theorists think that the Obama administration is ordering the Labor Department to be more aggressive in some of its estimations to get the headline rate of unemployment down to benefit the political fortune of the administration.
I don’t think this is the case. I don’t think they are making numbers up. It would be better for the market if they clearly released their suppositions and rational for judgements when they calculated numbers. Transparency is always key-and the methods they used to collect and analyze data ought to be an open book just like any academic economic study.
I remember back in the 1990's, many of the same critics today were accusing the Clinton administration of massaging numbers. What we learned was the 1990's were about a sea change in the way the labor market interacted with the economy. Inputs to production were transitioning, and we were witnessing how efficient a computerized manufacturing workplace was. Alan Greenspan testified many times before Congress that he the production and labor numbers didn’t add up for him, but he was using traditional metrics and logic to look at them.
When there is huge societal change, it takes around thirty years for it to make a difference. The printing press, electricity, railroads, autos and other sea changes took one generation to make a real impact on the output of the economy. Ask yourself the question, “When was the internet invented?”. The answer is around 1970ish. We are forty years into it. The world is just starting to scratch the surface and embed it in everything. Society is becoming extremely efficient at production and communication.
There are cascading economic effects, and a lot of those go right to joblessness. Many private organizations like Challenger and Gray and Gallup try to estimate the number. Do they do a better job than the traditional methods of the Labor Department? Hard to say.