The NYT has an interesting chart accompanying its payrolls story today. While the text is as upbeat as you'd expect given the excellent figures...someone on 43rd Street seems to have decided to run a graphic showing payrolls going down.

The chart violates a basic rule of charting, which is that a bar chart like this should be used to show how quantities change from month to month. Looking at the bar chart, you expect the March bar to refer to March figures, the February bar to refer to February figures, and so on. But in fact they refer to a year-on-year differential, which is better displayed with a line chart.

Still, that's a quibble: A line chart would still be going down, even as everybody is talking about the payroll numbers going up. What gives? To be honest, I'm not entirely sure. Year-on-year figures obviate the need for seasonal adjustment, so maybe the real trend is down but is being hidden by the seasonal adjustments. Alternatively maybe the enormous revisions that the BLS has been doing to the time series of late make the year-on-year figures less useful than they otherwise would be.

In any case, it's not immediately clear to me why year-on-year figures should be charted when all of Wall Street concentrates solely on the month-on-month number. If you're going to use these figures, you should at the very least somewhere explain why.

Another media cliche -- "economists were surprised..." After 20 straight quarters of being “surprised” by strong economic growth and job growth, when are they no longer allowed to call themselve economists?

In my field of engineering, being consistently “surprised” about work topics quickly results in job loss.

Contrary to what FelixSimon says, the NYT graph does *not* show payroll employment going down. It shows them going up. The graph shows the one-year *change* in payroll employment. The change is positive, so employment went up. What went down was the rate of change.

As for "economists being surprised," please note that I am an economist and I was not surprised. So right away we have to modify the remark to "some economists were surprised." Indeed, there are thousands of economists in this country alone, the NYT article cites a grand total of two of them, one of whom explained why no one should have been surprised. In fact, the article never says anybody was surprised. It only says the reported increase was larger than the average forecast. What of it? Realized outcomes of random events virtually always differ from expected outcomes, sometimes by a lot. I would have thought that anyone at all familiar with random variables would have understood that.

Finally, note that the same NYT news report said that the Labor Department revised up its January and February job change figures. Such revisions happen all the time as the Labor Department analyzes the full set of data. Perhaps in the next month or two the Labor Department will revise down the current March figure, in which case those who were surprised by the initial figure may turn out to have been right after all. Everyone should be careful not to attribute more precision to these initial figures than they actually have.

Update 2 [4/8/2007]... Reader Jerome Schmitt responds to Seater:

I didn’t say ALL economists were surprised – I said it was a cliche. Ever since President Bush’s tax-cuts, if I’ve hear the word “surprise” once connected with reports of good economic news, I’ve heard it a thousand times. In fact, I don’t read the NYT; my comment was a reaction to Friday’s NPR report. It’s the media who should fire their consistently “surprised” economists (Paul Krugman comes to mind of course) and hire ones who know what is happening. Economists should demand this as a matter of professonal pride – otherwise the public gets the wrong impression.

How would the public feel about engineers if they were prominently represented by a professor who designs bridges that always collapse?

The expected number of jobs created for March was 160,000. The actual was 180,000. The jobless rate was expected to go from 4.5% to 4.6%. It went to 4.4%, a five year low. Average wage climbed significantly. Wow, that's good news! So the Chicago Tribune headline was "Job growth fans fear of inflation". If the numbers had come in worse, would the Trib have said "Inflation fears calm.."? I doubt it. Then you would have annouced the negative numbers. This happens frequently. If news is bad the Trib portrays it as such. If news is good, the Trib finds something wrong with it. Do you have an agenda?

Maybe I am not getting this but it looks to me that the nonfarm payroll graphic is a rate of change in job creation. So non farm payrolls are still going up but not as fast as they were in the beginning of 2006 but faster than in 2004.

Ok, so sometimes things get better faster and sometimes they get better not as fast. Where is the story? Must things get better always at an absolutely constant rate?

How about comparing the rate of change of non farm payroll with the rate of change of newspaper circulation? Or network news Nielson ratings?

I am not a "free trade denier". China uses slave labor. There will not be unions there, not because they are "barnacles" (which I agree they have become in the US), but because China is a Communist dictatorship that jails union organizers.

China does not follow ANY of the health and safety conventions that are taken for granted in the West.

Do you really believe that it is alright to have 6 year old children working in coal mines, like we did here until the union activities of the early 1900s?

The unions have come close to killing the golden goose, but that does not mean that everything use to be hunky-dory. As you noted on Rush's show, Toyota etc., set up shop in the South instead of Detroit to avoid the unions. But you did not note that they would not have started making cars here at all, if it had not been for threat of tariffs if they didn't.

Do you really believe that workers should be locked in sweat-shops, with no ventilation and no way of escape in case of emergency?

...It is only "free" trade if it is close to a level playing field. That does not mean union wages and benefits and work rules. But it does mean basic health and safety, and no forced labor camps. Surely, you would not say that Nazi work camps were OK? So, why are Communist Chinese camps?

...It is also important to remember that we have enemies. It is not wise to be dependent on any foreign nation for food or militarily sensitive industrial products. That is another reason that Japan was "encouraged" to build cars here. It doesn't matter, from a national security perspective, who owns a factory, but where it is located -- in times of emergency, factories can be nationalized. But if all of them are in the home of your enemy, you are screwed.

...I understand that you are an investments officer, and investments overseas are good for business. But there are considerations besides profit. National security is the largest of these other considerations. China views us as an enemy. It would be the honest thing to make your investors aware of this.

You are making two entirely separate arguments. One is an ethical argument about whether we ought to be doing business with countries that have poor labor conditions. I take the point; I suppose there would be some extreme, such as literal slavery, where I would draw the line. But in the case of China it is far from literal slavery. The people working in modern factories there are the lucky ones. They have come from farms where their lives were utterly hellish. At least now they have a chance for a reasonably healthy working environment, some wages (high by their standards), and the creation of skills that will serve them will in the future.

As to our “dependence” on foreign manufacturing, let me state again what I said on the air. This country is at peak manufacturing capacity right now. We are simply not dependent on anybody for anything, other than raw materials we can’t get here, but couldn’t have anyway.

But let’s take it to extremes. Let’s say we had the opportunity to shut down our entire steel-making capacity here and import it all from China. Should we do that? Let’s say the answer from a military preparedness standpoint were “yes.” In that case, should the Dept. of Defense take over the operation of steel mills? Should soldiers do the work? If there aren’t enough soldiers, should people be drafted to do it? Those are questions you’d have to ask, since the only reason for otherwise shutting down that capacity is that it is uneconomical on normal terms.

I thought you let him off pretty easy, especially on his strawman of child labor. He and other liberals like to believe there's an evil capitalist hiding in every shadow, forcing us into slavery-like conditions, but the fact remains that child labor stems from necessity, not industrialization's maliciousness. It's merely part of the nature of an impoverished existence. You and I, being smart capitalists who know how the world really works, understand that when a man and woman do not produce enough by themselves, their children have to help. Decades ago, American factories, coal mines, etc., needed all available workers, young and old, simply because of technology. Any individual worker produced just a fraction of what one today can, so like on a farm, a son would work with his father -- except industrial jobs guaranteed having enough to eat. Even the most idyllic agrarian life required the children to work (and hence give up schooling), and no matter how much everyone worked, there was a very real chance of not having enough to eat, if not starvation.

I make no value judgment either way, refraining from saying in an absolute sense that children should work or that the law should forbid them to work. But I will say that if it hadn't been for "child labor," my father may have well starved to death. He was 11 when the Great Depression officially began, and he sold fruit on the streetcorners of upstate New York. If he saw someone's walkway covered in snow, he offered to shovel it in the hope of earning a quarter. If he could have worked in a factory, he'd have jumped at the chance. When a bit older, he was a promising track star, but he had to work after school.

Once I read about Chinese urban laborers sharing beds in shifts. Three would take turns, because, of course, the conditions are so crowded. And you're right, they are the lucky ones. It's better than risking starvation in the rural provinces. In my mother's home country of the Philippines, children must often work because their parents cannot earn enough by themselves. The lucky ones, when they get older, get jobs at Manila call centers. American liberals consider that slave labor because it's below our minimum wage, but one of my online friends couldn't be happier.

Here's how it works. Trib employees buy 100% of the company's stock with borrowed money, then turn around and sell 40% (a stake worth $3.1 billion at today's share price) to Mr. Zell for $590 million (a figure that represents the $90 million he'll pay for the option and $500 million he'll pay to exercise the option).

How does anybody buy $3.1 billion with $590 million? Good question: The Trib sale was forced by a big shareholder, the Chandler Trusts. Current shareholders care only about the price they get for their stock from the ESOP (employee stock option plan). What the ESOP does next isn't their problem, and the ESOP was Mr. Zell's idea and he basically represented the ESOP and himself at the same time in negotiating the terms.

Mr. Zell's lucrative, hard-to-justify option undoubtedly explains why he'll get only a $25 million break-up fee if the Trib deal falls apart. We'd have to guess that's exactly what will happen -- because the Los Angeles billionaire crowd, all strong Democrats, will blow the deal sky-high by publicizing the terms. Sam Zell is an energetic and admirable entrepreneur in many ways, and might even be the tonic the Trib needs, but the terms of his investment are absurdly underpriced.

Given all the media firepower concentrated on the Trib deal the last three days, why are you reading about this here? Out of delicacy, let's just note that leadership in business news is changing and CNBC and its on-air analysts have not quite stepped up to their new roles as the ones who now define the important business story for the rest of the media. But don't worry. Somebody will see this post and call attention to Mr. Zell's sweet option as if they had figured it out themselves.

Here's the whole transcript. Thanks to Andy Roth at the Club for Growth for the pointer.

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Thursday, April 05, 2007

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Wednesday, April 04, 2007

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Tuesday, April 03, 2007