In last week's column, Asia's New Infrastructure Bank Looms, I included a chart showing the deceleration in the rate of growth in payroll tax receipts received by the Federal Reserve and an increase in the rate of growth of jobs and wages as reported by the Bureau of Labor Statistics.
To explain the disparity, some commentators have pointed to substantial growth in low-paying jobs and little growth in high-paying jobs. Although there's some truth to that, it is not enough to account fully ¿ or even mostly -- for the discrepancy. Either jobs and wages are being over-reported or tax receipts are being under-reported.
Tax receipts are not being under-reported, and so the problem lies with the BLS figures.
There is nothing new in my observation that the BLS numbers may be wrong. The Federal Reserve Bank of Dallas weighed in on the subject in 2013.
The Federal Reserve Bank of Philadelphia commented on the subject recently, too, and has pulled its employment estimates for review and revision, with new numbers expected later this month.
For what it's worth, Zero Hedge also commented on the topic yesterday.
The degree to which this is occurring can be approximated by reverse engineering the tax receipts and wages to what they imply about jobs and the U3 unemployment rate.
The most recent BLS report, along with the Philly Fed announcement, is probably a signal from the Fed staff economists that they are aware of the problem which has been made worse by lower employment in the oil and related industries resulting from the drop in oil prices.
Going back to the chart I supplied last week, we can see that the 12-month average of the annual change of receipts growth is below 5%, with the 12-month average of wages at 4.45%; which implies a rate of growth of employment near 0% for the 12-month average, versus the 1.76% annualized growth implied by the BLS figures on jobs.
This is not a minor issue, which may be why the Philly Fed is preparing to revise its seasonal estimates of jobs. I'll address that topic again when the bank makes the data available on or about April 21.
The BLS should also be making similar adjustments soon.
Historically, when the rate of growth of employment dips below 1% on a rolling 12-month average basis, a recession is already under way. That previously occurred in March/April 2008 and June/July 2001.
The situation is probably happening now even as the Fed has been telegraphing its intentions to raise rates.
I don't know how the Fed and BLS will make their data adjustments, but everything I've listed above suggests an unemployment rate closer to 6.5% that's reported by Gallup, than to the 5.5% reported by the BLS.
For now, investors should be aware of the situation and look for the Fed to signal that rate hikes aren't as imminent as it has led the markets to believe.
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