BULLETIN: If you have one of the 3.3 million jobs the Labor Department can’t explain, please contact Secretary Elaine Chao at www.dol.gov. That’s right: 3.3 million new jobs is the cumulative difference between the Labor Department’s two ongoing surveys (payroll and household) since the current economic expansion began in November 2001.
Some background: The Bureau of Labor Statistics (BLS) is tasked to provide a monthly snapshot of the U.S. employment situation. This is no easy chore when one considers the wide spectrum of American enterprises — from mom-and-pops to global conglomerates — and how they have been franchised, outsourced, flex-timed, people-leased, tele-commuted, and WiFi-ed over the past decade.
To accomplish this undertaking the BLS uses two monthly sample surveys conducted by the U.S. Census Bureau. For the top-down view, 160,000 businesses and government agencies are contacted for the Current Employment Statistics (CES), which is referred to as the “payroll” or “establishment” survey. This is the “headline” number, and it is the survey focused on by the press and the financial markets. For the bottom-up perspective, 60,000 households are contacted for the Current Population Survey (CPS), better known as the “household” survey.
The BLS makes adjustments and population-control revisions to each of the surveys in order to facilitate apples-to-apples comparisons. But discrepancies invariably arise. The following comment comes from a February 2006 BLS study: “Although many theories about the discrepancies have been put forth, complete explanations have never been found for any of the divergences, despite a significant amount of research by the BLS and by outside analysts.”
A “complete explanation” may not be possible. But a persistent and widening gap that has now reached 3.3 million (7.9 million versus 4.6 million) and represents 42 percent of jobs created during this recovery surely deserves exploration for any underappreciated cause and effect. One is reminded of the famous retort of the 1980’s boom: “If this is voodoo economics, send more witch doctors.”
One of the most insightful commentators on the changes at work in the economy is Chris Anderson, editor of Wired magazine and author of a brilliant new book, The Long Tail. He cites three forces that are transforming the economy and creating vast new opportunities at the grassroots level for small and boutique businesses. Force 1: The democratization of the tools of production. (The obvious example is the PC as a tool for publishing and multimedia.) Force 2: The democratization of the tools of distribution. (For instance, the combination of the PC and the Internet makes everyone a distributor). Force 3: Connecting supply and demand. (Search filters and feedback loops like those found on Google, iTunes, Amazon, and Netflix help niche content find interested buyers and users.)
The best example of Anderson’s “long tail” dynamics is eBay. In just ten years this platform for selling and buying online has revolutionized economic behavior domestically and abroad. Consider this 2005 anecdote from BuzzMachine.com, a blog written by Jeff Jarvis: “724,000 people are using eBay as their full- or part-time employment up 68% from a year ago: another 1.5 million people use it to supplement their incomes. WalMart is America’s largest employer with 1.1 million workers.”
Rest assured that few if any of these eBay-enabled self-employed make the radar screen of the “headline” payroll survey.
Take a further step back and consider the recent job data within the context of the past hundred years. For the first half of the 20th century the key metric of progress was size and scale. Bigger was better, which usually meant overwhelming business advantage. The great engineering triumphs of the day — like the Grand Coulee Dam, the Golden Gate Bridge, and the Empire State Building — were a natural fit with the great enterprises capitalism produced to industrialize the country, such as U.S. Steel, GE, and GM.
But importantly, the advent of the transistor and the integrated circuit in the 1950s reversed this vector of progress. For the past fifty years the leading edge of advancement has been all about making things smaller. Today’s engineering triumphs happen at the cellular and molecular level. Governments pour millions of dollars into nano-technology funding, expecting it to be the next “big” thing. Perhaps smaller, more niche-focused enterprises are a natural outgrowth of this trend.
The strength and resilience of the American economy has confounded mainstream economists for the past several years as it motored through $70 oil, war and turmoil in the Middle East, Hurricane Katrina, and 17 rate hikes from the Federal Reserve. Clearly, the job survey data describes a more entrepreneurial-oriented economy, with small businesses and the self-employed accounting for an increasing proportion of overall economic activity and job creation.
The household survey deserves more attention. For the time being, it’s where the action is.
– Ashby M. Foote III is president of Vector Money Management.