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It’s all a numbers game

Every Monday morning brings the release of statistics from various government agencies and private organizations. The same is true of every Tuesday, Wednesday, Thursday and Friday.

Unfortunately, few of these statistical releases actually provide a context for what they might mean to the average consumer, business owner or local municipality.

For example, the week of Aug. 15 brought release of the Consumer Price Index and Real Earnings for July 2016 on Tuesday; the Summer Youth Labor Force for 2016 on Wednesday; and the July 2016 Regional and State Employment and Unemployment (monthly) on Friday. Those are just the numbers released by the Bureau of Labor Statistics.

The Nevada Department of Employment, Training and Rehabilitation released its own numbers on employment and unemployment the same Wednesday.

Taking a closer look at the Nevada DETR numbers, the first thing we notice is that the numbers reported — 6.5 percent of seasonally adjusted unemployment — include the term “seasonally adjusted.” While many of us know what this may mean, the process by which we arrive at this number is not entirely transparent.

Nevada DETR’s Nevada Labor Market Overview for July 2016 provides additional insight into the process.

The report explains: “Based on historical trends, we would expect public sector payrolls to decline by 5,500 during July, mainly attributable to the winding down of the academic year. This year we saw a decline in payrolls in line with expectations.” Also, “in the private sector, historical trends suggest that payrolls should go down by about 4,700 over the month. This year, however, jobs held steady. The end result is the seasonally adjusted gain reported above.”

On first reading the report, one is struck by some wording in the first paragraph: “The Silver State followed up an encouraging month of June (4,100 new jobs relative to May, revised down slightly from the 7,500 new positions originally reported) with an impressive showing in July.” The italics are mine.

The suggestion that a downward revision of the previous month’s number by 3,400 or 45.3 percent is a “slight” revision on its face seems ridiculous. The deviation from the correct number of jobs added is actually 82.9 percent. Looking at the numbers this way, the above statement seems outrageous, until you look at the process by which the state arrives at the number.

According to Bill Anderson, chief economist for Nevada DETR, the state does not estimate growth, but rather total employment, which in July reached 1.29 million, just 7,500 short of the high-water mark set in May of 2007. So a downward adjustment of 3,400 in total employment represents an error of less than 0.3 percent. Given that the numbers we are talking about are only estimates to begin with, that adjustment is indeed “slight” or even negligible.

The highest growth sectors in the economy for 2016 so far are the trade/transportation/utilities supersector, which has added 9,100 jobs; construction, which has added 6,400 jobs; and education/health services, adding 5,500 jobs.

The largest employment sector of leisure/hospitality only added a modest 3,200 so far this year. This may be a sign of some diversification in the local job market. But given that these numbers show short-term trends only, no conclusions should be drawn from the numbers.

Snapshot numbers like employment statistics always represent only the picture as it exists at a particular moment in time and don’t really allow for projections of what may be in the future.

If, for example, you were running a business selling furniture, these numbers don’t necessarily suggest that you should fill your warehouse with educational furniture in favor of stools for slot machines. Those kinds of decisions should be made using medium-term statistics that can provide more reliable information on trends within the various industries.

Comparing annual numbers, which don’t have to make seasonal adjustments, is a more effective way of planning your business strategies. They lack the volatility that comes with short-term statistics, taking a lot of the emotional components out of statistical analysis.

Ulf Buchholz is the researcher for the Las Vegas Business Press. You can reach him at ubuchholz@reviewjournal.com.

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