Hiring gauges not always in sync

WASHINGTON — When key labor statistics come out this week, it won't just be American jobs under the microscope. Recent readings of employment have left a confused impression of the nation's job market and focused attention on the gauges of hiring in the economy.

For two consecutive months, the ADP National Payroll Survey has raised expectations for solid job growth as measured and reported by the Labor Department. For two months running, however, the data from the Bureau of Labor Statistics has disappointed.

Last month, the ADP report showed that 297,000 private-sector jobs were created. That led to expectations that the government's numbers would reflect hiring well above the 125,000 or 150,000 jobs needed just to keep pace with new entrants coming into the labor force. Instead, the BLS numbers showed 103,000 new hires in December.

The ADP report for November similarly showed 93,000 new private-sector jobs on net, while the BLS numbers days later came in at a disappointing 39,000 positions.

It's indisputable that the economy is growing. New data from the Commerce Department on Friday showed a 3.2 percent rate of economic growth from October to December. Other indicators, such as indices of consumer confidence and retail and auto sales, also point to growth.

Still, the tepid hiring in November and December soured Wall Street, and the moves and mood swings of traders were amplified by financial news coverage that left the impression of an economic recovery yet to take off. Politicians piled on, blaming the numbers on everything from too much stimulus spending to "job-killing" health care legislation.

It's why the first Friday of every month continues to loom large. Wall Street and Washington are waiting for the kind of jobs numbers that show an accelerated recovery.

"Most of us who work with these numbers know the sampling variance in any one month and know how many months in a row (are needed) to see real trends. I think it's different in the world of trading (on Wall Street) where everything that happened in the past is ancient history," said Joel Prakken, the chairman of Macroeconomic Advisers, a St. Louis forecaster that created the ADP report using data provided by ADP, a private payroll company. "All that matters in the world of trading is whether the reported number is different than what the traders expected."

The ADP report measures a statistically significant sample of the 500,000-plus companies who use ADP for payroll services. Prakken's group then runs that and other data through an economic model to spit out a projection on private-sector hiring. Unlike the government numbers, the ADP figure doesn't include local, state and federal government employment.

Because the ADP number has been so divergent from the BLS numbers, which involve a larger universe of data and two distinct surveys, forecasters remain puzzled about soft hiring amid a clear recovery.

"The media has made a little more of it. We ourselves did get suckered in a bit by upping our forecast based on ADP (numbers). I'd say it's a lesson learned," said Stuart Hoffman, the chief economist for PNC Financial in Pittsburgh and a former president of the National Association for Business Economics.

Hoffman and other economists caution against reading too much into a single jobs report.

"I never put too much weight on any one month," said Harry Holzer, a Georgetown University professor and a former Labor Department chief economist.

Holzer looks at the jobless rate and hiring statistics over an average of three months or longer, and that shows hiring is definitely up but not enough to seriously begin knocking down the unemployment rate, now at 9.4 percent.

One theory for the disparity in the estimates is that the BLS numbers may underreport hiring by small businesses. By contrast, ADP is a third-party provider of payroll services to smaller companies, so its data may better capture this segment of the economy.

"Small business is undercounted. It's hard to get information from them. You can call Wal-Mart and say, 'Who do you have on your payroll?' And they tell you. But getting in touch with these small businesses is harder," said William Dunkelberg, the chief economist for the National Federation of Independent Business, a trade group for smaller firms.

The Bureau of Labor Statistics uses an estimate for how many small businesses start or close their doors. As hard data comes in from state agencies, all of the statistics are subject to revisions. But the first reported number is based on estimates.

"Last year, it looks like there were more terminations (of businesses) than there were starts, so right away your 'plug' number is going to be wrong," Dunkelberg said.

The Bureau of Economic Analysis, part of the Commerce Department, is currently looking at ways to better measure the contributions small businesses make to economic growth. The independent business federation thinks that too much attention is given to collecting data from manufacturers and the farm sector, both segments of the economy that account for ever smaller numbers of jobs.

"We haven't adjusted our data collection efforts to reflect the changes in the structure of the economy," said Dunkelberg, whose organization publishes a closely watched survey of employer hiring and optimism.