A new federal method of gathering labor market statistics is providing information that’s so inaccurate, Maine officials say, that they are unable to track the direction of the state’s economy.

The statistics, which are based on surveys of business payroll records, are reflecting wild swings in the number of jobs being created or lost each month. The figures are so volatile, state officials say, that they can’t tell how Maine’s job market is actually doing.

This is more than an academic problem. By law, the state budget is set with the help of economic forecasts that depends on these statistics. Job market data also sends a signal to businesses, which may make hiring and investment decisions based on their sense of the overall economy.

The lack of confidence in the government’s jobs data comes at a crucial time. On both the state and national level, economists are trying to determine if the halting recovery has stalled and another downturn is looming.

“The economy is poised on a knife’s edge,” said Charles Colgan, an economics professor at the University of Southern Maine who is chairman of the state’s Consensus Economic Forecasting Commission. “If consumers won’t spend, businesses won’t hire. And in this period of uncertainty, we don’t know if the economy is growing.”

Colgan’s group meets on October 26 to devise its next forecast.  Payroll employment data typically is the best indicator of the pace of the economy and the outlook for growth, he said.

“We’ve never been in this situation in the 18 years I’ve been doing this, where the most basic numbers are so unreliable,” Colgan said.

Jobs numbers serve as a barometer for overall economic activity.

Each month, the Maine Department of Labor releases the state and metropolitan area jobless rates. The percent figures are based on household surveys and widely circulated in media reports. Less mentioned, but closely watched by business leaders and economists, is a survey of employment, hours and earnings estimates based on payroll records.

State labor market analysts helped the federal government gather that data for the past   50   years.   But   last   year,  the �Bureau of Labor Statistics decided it would be more efficient to centralize the Current Employment Statistics Program. The change, which is under way but still needs funding approval in Congress, followed bureau concerns that jobs data reporting from some states during the recession was lagging and didn’t reflect the changing economy.

“We see comparable or better estimates coming out of this,” said Kirk Mueller, a supervisor at the bureau’s state and area branch in Washington, D.C.

Mueller acknowledged that small states, such as Maine, are more prone to larger data swings because they have fewer businesses reporting in the surveys. But the bureau plans to add more businesses, he said, which should reduce variability. It also will continue to welcome “local knowledge” from state labor departments, Mueller said, such as news about the arrival of a major employer.

This explanation doesn’t satisfy Maine officials, however.

The survey method that the bureau is using, they charge, is putting too much weight on seasonal businesses. That leads to large employment fluctuations in small states such as Maine when, for instance, the ski season ends or the summer tourist season ramps up.

This approach led earlier this month to a curious conclusion in a Maine Department of Labor news release. The agency noted that Maine’s seasonally-adjusted unemployment rate ticked up one-tenth of a percent in July, to 8.1 percent. Despite more people being out of work, Maine added 5,500 jobs.

That’s impossible, according to Glenn Mills, director of economic research at the department’s Center for Workforce Research & Information. Maine has never seen such a large, monthly change in jobs, he said.

In May, the department reported that Maine had added 4,400 new jobs. A month earlier, it reported that Maine had lost 5,500 jobs.

“There’s not a chance we gained or lost as many as 5,500 jobs in a single month, but that’s what we are required to publish and support as the ‘official’ estimates,” he said.

After looking back and averaging all the monthly swings between last September and this July, Mills calculated that Maine actually added 500 jobs – essentially a flat trend in a labor force consisting of nearly 594,000 non-farm jobs.

But the trend through July reveals little about what Maine can expect in the future.

Looking forward is critical for developing a state budget, for example, because the majority of money in the general fund comes through the sales tax and individual income tax. The state currently is projecting that it will receive $2.8 billion in revenue for the 2011 fiscal year, of which $2.2 billion will come from sales and income taxes. 

That’s why tracking payroll employment is so important, said Michael Allen, director of economic research at Maine Revenue Services. If jobs appear to be  growing, the state can be more optimistic about receiving the targeted revenue from income taxes and sales taxes. If jobs are shrinking, however, state government should brace for less money in the general fund.

By law, the state’s revenue forecasting committee must take the recommendations from Colgan’s group, refine them, and send them to the governor, who must use the projections to help develop the budget. It’s hard enough to predict what’s happening to the economy with good data, Allen said.

“This data is as important as any information we have, and to not have it as accurate as we would like, just compounds the problems we’re facing,” he said.

Economic outlooks are important to Maine’s tourism industry, which uses  employment trends as one measure of whether travelers will come and spend money. Greg Dugal, executive director of the Maine Innkeepers Association, said 2010 is shaping up to be a strong season, but many of his members are still struggling with debt from 2008 and 2009. “If they see a negative forecast, they may not do capital improvements or hire more people,” he said.

Conclusions based on bad information worry Michael LeVert, Maine’s state economist. Consumer spending is key to the economic recovery, and right now, Maine officials are handicapped in their efforts to see where the job market is headed. 

“We’ve lost faith in the numbers,” LeVert said. “We’re left having to wait to understand how Maine is faring in the nascent recovery.”

Staff writer Tux Turkel can be contacted at 791-6462 or

tturkel@pressherald.com

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