Unemployment Friday

The real news in this month's release is the annual benchmark revision to the payroll survey. We have been warning people for months that there will be an unusually large downward revision, possibly as much as 150,000 taking total job loss in the recession to around 1.2 million.

Well, the number we got today was a downward revision of 338,000, an absolutely stunning 2.4% additional decline in the top line non-farm jobs number. I guess we can tack on another year to how long it will take us to regain our pre-recession payrolls.

How does this happen? Remember the monthly employment reports are based on survey data. It is a very reliable, time tested, large sample survey of 42,000 California businesses. Still, it is survey data and subject to revision. Normal annual revisions are relatively modest and can go up or down.

To understand what is going, you need to realize that the full sample of employment data comes from actual unemployment tax receipts and there is about a 9-12 month lag in compiling this data. So, each March they rebenchmark the series to the full tax rolls (we now have a March 2009 benchmark) - and use this as the new take-off point for the current estimates based on survey data.

So this new series is based on a much more complete understanding of what actually happened to payrolls during the early stages of the recession in 2008, as well as the deepest part of the downturn in the 1st quarter of 2009. It was even worse than we thought at the time.

The California unemployment rate ticked up to 12.5% adding to the bad news. The monthly increae of 32,500 seasonally adjusted jobs is being overinterpreted and is just a bounce back from the overly large decline of nearly 40,000 jobs last month. Overall, our view is that payroll jobs are bouncing along the bottom at the moment and we sholdn't over react to seasonal noise (especially in December/January data).

EDD is delaying release of detailed data, and data for metro areas until next week. They are having delays with the new benchmarking process - and given the scale of the statewide revisions - it is not hard to see why. So, we will have another unemployment update next week focusing on the metros.

P.S. Since the blog has a lot of readers following the farm jobs discussion, I should mention that the farm jobs were revised down too - something I have been warning people about who are overemphasizing the less than 0.5% decline in statewide farm payrolls between 2008 and 2009. Still, the downward revisions appear to be smaller than for non-farm jobs (Update 5/7: I was wrong, the downward revisions for farm jobs are a little larger than non-farm jobs.) I will dig into this more when the detailed data is released next week.