Earlier reports prove too pessimistic

Whenever the monthly payroll numbers come out, the media tend to pay a lot of attention. When the numbers get quietly revised — twice — in the months that follow, few people notice. But they should. Those revisions can matter a lot. Because, for the past year, the initial jobs reports have consistently been way too pessimistic.

For most of 2011, the initial jobs reports frequently seemed dismal. Who can forget that dreadful August, when headlines trumpeted zero net jobs? But when those numbers were revised months later, they turned out to be significantly better. If you paid attention only to the initial monthly estimates, the economy added just 1.38 million jobs last year. But if you paid attention to the final revisions, the economy actually added 1.82 million jobs last year — twice as much as 2010, and a difference of 440,000 jobs:

(BLS)

It’s even been true over the past few months. Today’s jobs report revised November’s 100,000 jobs upward to 157,000 jobs, and December’s 200,000 jobs to 203,000 jobs.

Why are the initial payroll estimates off? Many businesses are a little sluggish in sending in their responses to the government surveys — and once these stragglers report in, the numbers tend to nudge upward. But why should this happen so consistently? It’s a mystery. One possibility is that the government’s models assume that the future will be just like the past — causes them to underestimate the pace of job growth during recessions.

In any case, it’s one thing to keep in mind when these jobs reports come out — the revisions might seem dry and technical, but they can often make a huge difference.