Saturday, February 8, 2014

How accurate is the U.S. unemployment report?

Question:  Are the unemployment numbers in the U.S. accurate?

Answer: Unfortunately there is no decisive answer to this question.  The unemployment numbers as reported by the U.S. Bureau of Labor Statistics (BLS) are treated as accurate by most economists, though there is no way for a civilian to verify the accuracy.  There are some independent analysts who have attempted to conduct their own unemployment surveys, but there is too much contradiction among these various polls to believe these to be superior to the numbers released by the BLS.

The closest we can come to making an overall assumption as to the overall unemployment trend is found in the collective stock price movements of several stocks sensitive to the job market.  When the combined average price of these stocks is rising we can assume that the unemployment rate is falling, or else is on the verge of falling.  Conversely, when these stocks are falling we can assume that conditions are not favorable for rising labor participation. 

The five stocks that most accurately reflect the overall soundness of the U.S. business/retail economy are: Amazon (AMZN), Ebay (EBAY), WalMart (WMT), FedEx (FDX) and Monster Worldwide (MWW).  Collectively, these stocks form the basis of the New Economy Index (NEI).  The NEI chart is shown below.

As you can see, NEI is still in an intermediate-term upward trend.  The last formal “sell” signal of this index occurred all the way back in the early part of 2010, and it lasted all of two months.  Since then NEI has signaled a gradual expansion of the U.S. retail economy.  This assumes an improving underlying employment trend, however painfully slow it might be.

It’s also worth pointing out that one of the components of the NEI, namely Monster Worldwide (MWW), has shown a rather dramatic improvement in the last few months.  Monster reported a blow-out earnings increase last week, resulting in a 25% jump in its share price.  This implies an improved picture for U.S. job hunters.

This could change later in the year with the major yearly Kress cycles bottoming into the fall.  But until NEI actually gives us a "sell" signal, we should assume that the U.S. employment and retail sales picture remains fairly healthy.