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April 5, 2013 / Toby Dayton

“It’s A Fucking Tiger Man!”

Even worse than missing a forecast really badly is missing one badly when the right answer (and a contrarian one at that) was sitting right in front of your face. To be sure, predicting the future is a tough, unforgiving business, and a good first rule is that when you have a model that works, stay on the boat. I’ll explain the analogy (and the title of this post) in a minute, but first I want to cover the numbers from this morning’s Employment Situation Report.

According the the Bureau of Labor Statistics, the U.S. economy added a net gain of 88,000 jobs in March. This represents a steep drop from the 268,000 jobs that were created in February (which the BLS revised up from the initially reported 237,000 figure). January’s numbers were also revised upward this morning from a gain of 119,000 to 148,000.

The mistake I made this week in my analysis of the output from our model was that I ignored our data from January.

April Forecast

In January, new job openings in LinkUp’s job search engine (which indexes 1.5 million jobs from over 25,000 corporate websites throughout the U.S.) dropped 5% from December and total job openings fell 3.7%. But because December and January are always a bit of a challenge in evaluating jobs data (i.e., ADP’s ‘purge’ effect, seasonality, holidays, New Year’s Resolutions, new-year-budgets and hiring plans, etc.), I discounted the impact that those declines would have on job growth in later periods.

Not only had job growth been strong for 8 months, job gains had begun picking up momentum and were increasing. We started seeing that acceleration in our numbers between August and October, and those job opening gains translated into larger reported job gains between November and February. With that acceleration, I had predicted (inaccurately as it turns out) that the lag time between when a job opening shows up in LinkUp and when that opening is filled with an actual hire had decreased from its historical 60 days down to 30 days. It hadn’t, and if I had stuck to the 60-day historical lag time, my prediction would have been a net gain of 126,000 jobs in March. (The 126,000 figure results from February’s original 236,000 less 90,000 calculated from our model based on the decline of 4.6% in LinkUp listings in January. We then would subtract an additional 20,000 jobs because our data is overweighted to private-sector jobs and we have to adjust to account for the continued decline in government payrolls. The net result would be:  236K-90K-20K=126K). That would still have been higher than this morning’s number, but far lower than consensus forecast and very close to the mark. I would also guess that the 88,000 number in February will be revised up in one or both of the next two Employment Situation reports. Based on the March BLS numbers and LinkUp’s February numbers (strong gains in new and total job openings), I am also forecasting at this point that the U.S. will add 245,000 jobs in April.

In any event, the encouraging take-away from this morning’s report is that our model remains incredibly sound. Unfortunately, I don’t always appreciate how accurate our data is, how highly correlated it is to future job growth, and how disciplined I need to be in sticking to its output when making our forecasts. Learning to read an alethiometer is always a challenge, but the other key lesson is the same learned by Chef in Apocalypse Now. After disregarding the Captain’s rule to stay on the boat and nearly getting eaten by a tiger, Chef has a total freak-out meltdown and screams, “I got to remember. Never get out of the boat.” In disregarding January’s job opening declines on LinkUp, I got off the boat and went wandering around the jungle trying to find Mangos. As Captain Willard narrates at the end of that scene, “Never get out of the boat. Goddamn right.”

From now on, I’m staying on the boat.

 

One Comment

  1. Batman / Apr 30 2013 7:17 pm

    What is your guess for this month?

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