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Local economists question usefulness of jobs reports

Until 10 days ago, Massachusetts business executives and policy makers could feel pretty good about the pace of the state’s economic recovery.

Official statistics showed employers adding nearly 41,000 jobs last year, an average of about 3,400 new jobs a month. Then the Labor Department revised its earlier estimates, downgrading the state’s 2011 job growth by 78 percent, to just over 9,000 jobs, or about 750 jobs a month.

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The huge revision paints such a dramatically different picture of the state’s labor market that local economists are questioning the credibility of the state employment and unemployment statistics released each month. Some say the figures are so suspect that the Labor Department might be better off giving up making monthly jobs estimates for states, and instead produce them quarterly or semi-annually.

That would allow the department to collect more data on which to base the estimates.

“I don’t know what the problem is, but the month-to-month changes are just too big,’’ said Andrew Sum, an economist and director of Northeastern University’s Center for Labor Market Studies. “When they change monthly numbers that much, no one takes them seriously anymore.’’

Sum and other economists acknowledge that estimating monthly employment is difficult given the limited raw data available during any single month. But one of the ironies, they note, is the Labor Department took over a greater share of compiling, analyzing, and estimating job figures from states last year because of past controversies over the reliability of the statistics when individual states handled the job.

To build the estimates, the Labor Department’s statistical agency, the Bureau of Labor Statistics, surveys about 4,400 establishments in Massachusetts. The survey program is voluntary, and employers often don’t respond every month. Even if a monthly payroll response is good, the bureau still has to base its estimates on a relatively small sampling of the state’s nearly 230,000 establishments.

Further complicating the process, the Labor Department must estimate the number of new companies that are launched each month and the jobs they create, as well as the number of firms that fail and eliminate jobs. The agency has developed a model to project monthly births and deaths of firms, but it’s not science.

“It’s a snapshot of the economy at a given point,’’ Chris Manning, deputy division chief of the Bureau of Labor Statistics current-employment statistics program, said of the monthly reports. “It’s based on just a sample of businesses.’’

Despite the misses, the Bureau of Labor Statistics, defends its efforts to produce accurate estimates, noting it collects as much information as possible and adjusts the figures as more data become available. The annual revisions, for example, are based on unemployment-insurance data that give a more precise accounting of the number of workers on payrolls, but usually lags by about six months.

As a result, only the monthly estimates in the first half of 2011 were revised based on the unemployment insurance data. The bureau used projections to adjust the figures in the second half - projections that many local economists said appear to underestimate the state’s job growth in the last six months of 2011.

Alan Clayton-Matthews, another Northeastern University economist, said he, too, believes the Labor Department has yet to provide an accurate picture of the state’s labor market. While the initial estimates likely overstated job growth in Massachusetts, Clayton-Matthews said, the revision was far more extreme than he had expected.

“It’s still a little bit puzzling,’’ he said. “It can be frustrating. These types of surveys can have big swings that can be hard to overcome.’’

Still, some economists say it’s important to gather and release monthly payroll estimates, even if they undergo major annual revisions. “It’s always better to have the best available data, rather than no data,’’ said William Cheney, chief economist at Boston’s John Hancock Financial.

Cheney added that it’s particularly difficult to pinpoint economic activity in a dynamic, free enterprise system. “There are a lot of things going on in an economy that’s hard to track,’’ he said. “The data, to a certain extent, is always going to be incomplete.’’

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