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Thursday, January 05, 2012 9:27 PM

Whoa! The 10x Difference Between TrimTabs December Jobs Estimate of 38,000 New Jobs and ADP’s Estimate of 325,000 Begs an Explanation

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For the second consecutive month, ADP has forecast an unusually high estimate of private job creation for the BLS payroll report. This month ADP's estimate is 325,000 jobs. Last month, and on many other occasions, ADP's estimates and the BLS reports were miles apart. Is one better than the other?

While pondering that question, this month Trim Tabs has stepped up to the plate with a forecast of 38,000 jobs.

Explaining Trim Tabs 38,000 Jobs Estimate

Madeline Schnapp, Editor of "TrimTabs Weekly Macro Analysis" and "TrimTabs Employment NewsFlash" provided a transcript of the above video.

Video Transcript

Hello from Sausalito California Today is Thursday January 5, 2012. I am Madeline Schnapp with Today’s Macro Musings.

On Tuesday, January 3rd TrimTabs released its December jobs estimate which showed the U.S. economy added only 38,000 new jobs. Today, ADP released its December jobs estimate pointing to job growth of a stunning 325,000 new jobs, almost 10 times TrimTabs estimate. In addition, the consensus estimate for the BLS report this Friday is for 150,000 jobs. Whoa! The differences between the three estimates begs the question of what is going on here?

Before we answer that question, a few observations are in order. First, we challenge the notion that the BLS should be the standard bearer for job growth in the U.S. because its estimates are frequently revised, ranging from a few percent to several hundred percent. For example, in August, the BLS revised its estimate up from 0, a showing an economy on the verge of recession, to 104,000 showing an economy experiencing positive but weak economic growth. Second, the BLS and the ADP estimates are based on surveys that are incomplete when released. The BLS survey is only about 70% to 75% complete when it releases its first estimate. Finally, seasonal adjustments from November through January are enormous and range from a low of 800,000 jobs to a high of 2.1 million jobs to account for the huge number of holiday seasonal jobs that come and go during the holiday season.

TrimTabs jobs estimate, on the other hand, is based on daily income tax withholdings to 130 million wage earners.

Historically, our jobs estimates have been more accurate than the BLS’. BUT and this is the big BUT, like ADP and the BLS, December and January are the most challenging months for the following reasons: First, if there are tax law changes, they typically expire or go into effect in December or January; second, there are two or three holidays in December, Veteran’s Day, the optional Christmas eve holiday, and Christmas day; finally, December kicks off bonus season which adds non job-growth taxable income to payrolls from late December through March. TrimTabs makes adjustments for these one time calendar effects but some years are more difficult than others as this one might be.

Given the trends in tax withholdings the last few months, there is no way that job growth was a whopping 325,000 in December, certainly not permanent job growth. If there was a big jump in permanent job growth in December we would have seen it in our other real-time indicator, TrimTabs Online Jobs Index. That index, however has declined 8.0% since October which means that hiring managers are sitting on the sidelines until more clarity emerges about economic growth this coming year.

The proof, as always, is in the pudding. Soon the BLS will release its benchmarked results for the year ending March 2011 which will allow us to truth our model. Let me tell you, we eagerly await those results.
Tax Law Changes to the Forefront

Note that the number one reason cited by Trim Tabs for the difficulty in making December jobs estimates is tax law changes.

I mentioned tax changes on Tuesday in Manufacturing ISM Highest Since June; Expiring Business Tax Credits Explain Why; Enjoy it While You Can As US Decoupling Won't Last.

For amusement purposes, I will step out on a limb and guess 78,000 jobs in Friday's BLS report.

Bear in mind there is likely to be many revisions to these numbers, so even if one is wrong tomorrow, it does not mean a guess was really wrong.

Following the Trim Tabs estimate, I gave a list of questions to Madeline Schnapp regarding Europe, oil, Japan and other fundamentals. She promised to respond later in more detail. I will post the questions and answers when she does.

Mike "Mish" Shedlock
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