Blunt Force Economics Trumps Fancy Economic Models
It's funny that with all of the fancy models and resources that most high-paid economists out there have that they can't get better at predicting where the economy is headed. The fancy folks on the street plugged all of the numbers that they could get their hands on into their models and came up with an estimate of 525,000 jobs lost in January.
When I saw the estimate, I said to myself "Man that seems too low. Not even the BLS can fudge the number that much in this sort of environment." At the time, I was listening to one of my favorite shows, Bloomberg Surveillance (I know it's dorky that I like this stuff, but I even things out by being able to drink more than you), on the drive into work this morning and Tom Keene asked listeners to e-mail him their guess on what the January jobs number would be.
So I used what one could call blunt force economics (as opposed to the scalpals that the rest of the economists out there use) to come up with my own estimate of what the number would be like. Just by looking at all of the layoffs that companies have been announcing (see post: Challenger report: Job cuts soar to seven-year high) it is clear that the employment situation out there is much worse than anyone would care to admit.
Of course, everyone knows that the good old Bureau of Labor Statistics always fudges the numbers, whether by incompetence or on purpose is open to debate, so I started with a high number in my head of over 700,000 jobs lost for the month (even that is probably low for any practical purpose, but come on no one will ever officially admit that) and I then adjusted the number downward. I said to myself, "There's no way that the BLS wants the jobs report to show a loss of 600,000 for the first time during this recession." So I adjusted my guess downward to a rough number that's just below 600,000...for an official blunt force estimate of 590,000.
Sure enough, when the jobs number was published at 8:30, it came in at 598,000. The fancy economists can take that and shove it in their models ;). Despite the fact that they and their PhDs want to make economics rocket science it's not...it's all about common sense.