November 2012

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THE LATEST SECONDARY MARKET How Does Benchmarking Affect Payroll Data? For mortgage professionals, evaluating employment and payroll statistics from an economist's perspective can provide industry insight. W ber loomed large: not the number of new payroll jobs—expected by economists surveyed by Bloomberg to be about 113,000—and not the unemployment rate (expected to be 8.1 percent), but 386,000. That's the number of jobs added to the nation's payrolls not by employers, but by the Bureau of Labor Sta- tistics (BLS) in its annual "bench- marking" of payroll data. BLS made its "preliminary" hen the September employment situ- ation report was released, one num- rolls were 386,000 higher last March than previously reported. Government payrolls were, BLS said, 67,000 lower than had been reported and private sector pay- rolls 453,000 higher. The revised estimate implies a monthly pace for private payroll gains of about 215,000 in the 12 months through March, rather than the 179,000 per month currently reported. Though conspiracy theorists benchmark announcement recently, and it will be officially incorporated into the payroll statistics in February. According to BLS, total pay- of businesses from which to draw its CES sample. Start-ups that might not have been required to file unemployment insur- ance returns because of when they began operations are not in that grouping and therefore not sampled until their second year of operation (assuming they've survived). That could itself lead to an undercount of jobs. BLS com- pensates statistically by applying a "birth-death" model to address the unavoidable lag between a firm opening for business and its appearance on the unemployment insurance roster. According to BLS, the net of business birth and deaths is relatively small and stable, even during business cycle changes, and BLS research using 10 years of unemployment insurance data showed that while birth and death components are large, they are mostly offsetting. Each September, BLS produces its "preliminary" benchmark- ing, to be finalized the following February with data bench- marked to comprehensive counts of employment for the previous March. Data for March 2012 showed may argue otherwise, the revised numbers are not government manipulation of the data but rather are based on more complete jobs data from unemployment insurance records. The unemployment insurance records—obtained with the annual filing of unemployment insurance tax forms—not only provide BLS with a more accurate count of payroll jobs but also provide the BLS with a roadmap to follow in developing its monthly jobs numbers. BLS develops the ing comes in. To check its survey results, BLS compares its data with the unemployment insurance returns (which are filed annually) and makes the appropriate adjustments—either up or down. For example, the adjustment for 2012 adds 386,000 payroll jobs, while the adjustment for payroll estimates from its Current Employment Statistics (CES) pro- gram, a monthly sample survey of approximately 486,000 individual worksites—representing about 160,000 companies—reporting on individuals on business payrolls during the week of the month including the 12th calendar day of the month. But since the CES is a sample, it doesn't necessarily cover all the businesses in the country. That's where the benchmark- 2011 added 162,000. However, the adjustment for 2010 subtracted 378,000, and the 2009 adjustment subtracted 902,000. In addition to being more comprehensive, using the unem- ployment insurance tax returns has one other advantage: Unlike the monthly surveys, which are voluntary, the unemployment tax returns are mandatory. That participation in the monthly survey is voluntary creates another problem for BLS. If a company fails to respond to the survey in a given month, BLS does not know if the company merely chose not to be- cause of the crush of business or if the company no longer exists. The unemployment insurance returns serve another function: providing BLS with the universe changes of 1 percent or more to job tallies in the information, construction, mining and log- ging, and other services industry sectors. Of the 11 major industry sectors, four had fewer jobs than originally reported: government (down 67,000), manufacturing (25,000), professional and busi- ness services (14,000), and educa- tion and health services (1,000). The transportation, trade, and utilities sector had 145,000 more jobs than originally reported, fol- lowed by leisure and hospitality (99,000), construction (85,000), other services (54,000), informa- tion (51,000), financial activities (47,000), and mining and logging (12,000). The November and December estimated job counts (released in December and January, respec- tively) are revised due to the combined impact of benchmark- ing and additional samples as new worksites are rotated into the survey in November. THE M REPORT | 73 ORIGINATION SERVICING ANALYTICS SECONDARY MARKET

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