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Fudged Employment Statistics: Birth-death adjustment scam

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I’m totally shocked that the gooberment can’t get their shi* together. I wonder how much other data need revised. Any ideas?

easystreet. Comment to
Birth Death Model Outpaced By Business Failures
The Big Picture Nov 21, 2009

Official employment statistics does not take into account declining participation in labor market as well as overestimate the contribution to employment of new companies during the slow down (and underestimate those during acceleration of economy).  For some reason Bureau of Labor Statistics  does not provide the standard error estimate.  And this is a must for any "sampling" data (this is a survey of about 160,000 businesses and government agencies, representing approximately 400,000 individual worksites) and actually its accuracy can later be calculated based on other sources of data like tax records and social security payments.  Birth/death adjustment during economics slowdown definitely distorts the estimate up. 

The declining participation in work force also means that actual unemployment rate is higher.

The labor force participation rate is pro-cyclical, meaning that it goes up as tight labor markets induce new entrants into the labor market; and it goes down when soggy labor markets lead the discouraged unemployed to drop out of the labor force.

So, the short answer to the puzzle why there was a statistically solid job growth since mid 2006 might be related to the method of collecting the statistic. It might well be that nonfarm payroll growth really is/was almost absent and was result of aberration caused by the semi-absurd method of adjustment of data. That's a serious deficiency...

The unemployment rate is measured by the Household Survey and number of jobs lost in the Establishment Survey. The Birth/Death Revisions are to the Establishment Survey.

Detailed data in the Bureau of Labor Statistics (BLS) Business Employment Dynamics (BED) release, which comes out with a two-quarter lag, show employment growth of only 19 thousand in 2006Q3, while the nonfarm payroll tally for that quarter was over 450 thousand. The question arises why government reports more then 100K created jobs figure each month. Richard Benson in his paper How the Government Creates Jobs analyzed the situation in the following way:

Our elected officials and Wall Street executives all have a vested interest in keeping the perception of a robust economy alive. The employment data announced each month is critical to this perception, but a thorough analysis of the data suggests something quite different that what we are told.

Since 9/11, 60 percent of job creation has related almost directly to the housing boom and consumer spending, generated from home equity extraction through mortgage refinance. Remember, the Federal Reserve cut interest rates to one percent and kicked off the greatest housing bubble of all time. The housing boom created an America with over 1,200,000 real estate agents, and hundreds of thousands of jobs in the mortgage and home construction industry.

On the surface, the job market looks sound and Wall Street bulls take every opportunity to reinforce this belief whenever low initial unemployment claims are announced. But common sense tells me there is something brewing below the surface and this housing bust will have an even bigger impact on our economy, than previously suggested, by reducing employment and consumer spending, in a big way.

(The officially reported governmental statistics fail to note that a very high percentage of new jobs created in the past few years were commission-only jobs, or jobs with independent contractor status. Workers categorized as independent contractors are not eligible for unemployment benefits. This means all of the real estate agents who haven't made a sale, along with the mortgage bankers who no longer have a company to bring their loans to, will not be filing for unemployment, even though they haven't made a dime. The Department of Labor Statistics, however, continues to view these unemployed and vastly under-employed workers as holding full- time jobs.)

The latest employment data from the payroll survey showed it added 88,000 workers. However, the household survey - a broader measure - showed a loss of almost 500,000 jobs. According to the household survey, over 360,000 workers simply dropped out of the labor force in April. So, if you want to believe the Wall Street touts, please go right ahead and put your rose-colored glasses back on and tune into that movie with the happy Hollywood ending. If, on the other hand, you think like me and believe there is an economic storm brewing, please read on.

Our government "prints up jobs out of thin air" the same way the Federal Reserve prints up money. To manufacture jobs, The Bureau of Labor Statistics uses their very own Net Birth/Death computer model (see CES Net Birth/Death Model for job creation at www.bls.gov). The idea behind the model is simple: Because small firms are always failing and starting up and it takes a few months for them to report on the payroll survey, an estimate is needed for the new jobs created. So, back when the economy was recovering, the Net Birth/Death Computer Model added jobs that had very likely been created. Their methodology goes like this:

I realize the above may sound confusing, but it's actually meant to. This is economic propaganda created by our very own government! This false creation of jobs is not that much different from the over-stated earnings created by the executives at Enron that brought the company down.

Pimco's Gross analyses the situation in a slightly different way and with less emotions but points out to the same mechanism of computer generated jobs:

Here at PIMCO, we continue to expect the unemployment rate to go up. Thus, we are still (painfully, since December) long of duration, concentrated in the front end of the yield curve. And why are we still bearish on employment growth?

First and foremost, unemployment is a lagging variable, notably of momentum in discretionary aggregate demand. And discretionary aggregate demand has been unambiguously decelerating in recent quarters, and not just in residential construction, as displayed in the chart below.
 

The Great Puzzle

So why hasn’t the unemployment rate already risen? It’s the great puzzle, in the words of San Francisco Fed President Janet Yellen. The short answer to the puzzle is that the labor force participation rate has fallen, accounting fully for the drop from 4.7% to 4.5% for the unemployment rate over the last year. But this doesn’t make sense when you look at nonfarm payroll growth, which, again in the words of Ms. Yellen, has been gangbusters.

... ... ...

And a key reason is that the BLS, while very good at counting heads at existing firms, must make an assumption, in real time, about the birth-death rate for firms, so as to estimate the net gain/loss in jobs as firms open and close, a never-ending feature of a capitalist economy. In the early years of expansions, the birth assumption systematically is too low and the death assumption is systematically too high, which results in "jobless recoveries," which turn out to be not-so-jobless recoveries upon revision. The exact opposite holds in the late years of expansions and particularly in recessions. Such is the case, it would appear, at present.

Thus, in contrast to last August, when the job tally for the year ending March 2006 was revised up some 800 thousand, a stunningly large revision, the opposite is likely to unfold in this August’s benchmark revision for the year ending March 2007. Not to suggest, I hasten to add, that a downward revision equal to last year’s upward revision is in the cards. The honest answer is that we don’t know how big it will be. But available data, notably the BED and JOLTS data, point squarely to a downward revision.

So what, you say. Economists always bellyache about the quality of the data when they go against their forecasts. This is true. It is also true, however, that poor data can make for poor policy making, if and when the data is taken to be religiously true. This is particularly the case if the data is known to be lagging data of the business cycle, as is the case with the unemployment rate. Acting on the data, or refusing to act because of it, is the stuff of policy mistakes, sometimes known as recessions.

NEWS CONTENTS

Old News

[Sep 11, 2017] The only countervailing force, unions, were deliberately destroyed. Neoliberalism needs to atomize work force to function properly and destroys any solidarity among workers. Unions are anathema for neoliberalism, because they prevent isolation and suppression of workers.

Highly recommended!
Apr 15, 2017 | economistsview.typepad.com
Denis Drew , April 15, 2017 at 06:58 AM
What's missing in each and every case above -- at least in the USA! -- is countervailing power. 6% labor union density in private business is equivalent to 20/10 blood pressure in the human body: it starves every other healthy process.

It is not just labor market bargaining power that has gone missing, it is not only the lost political muscle for the average person (equal campaign financing, almost all the votes), it is also the lack of machinery to deal with day-to-day outrages on a day-to-day basis (that's called lobbying).

Late dean of the Washington press corps David Broder told a young reporter that when he came to DC fifty years ago (then), all the lobbyists were union. Big pharma's biggest rip-offs, for profit school scams, all the stuff you hear about for one day on the news but no action is ever taken -- that's because there is no (LABOR UNION) mechanism to stay on top of all (or any) of it (LOBBYISTS).

cm -> Denis Drew ... , April 15, 2017 at 12:16 PM
It is a chicken and egg problem. Before large scale automation and globalization, unions "negotiated" themselves their power, which was based on employers having much fewer other choices. Any union power that was ever legislated was legislated as a *result* of union leverage, not to enable the latter (and most of what was legislated amounts to limiting employer interference with unions).

It is a basic feature of human individual and group relations that when you are needed you will be treated well, and when you are not needed you will be treated badly (or at best you will be ignored if that's less effort overall). And by needed I mean needed as a specific individual or narrowly described group.

What automation and globalization have done is created a glut of labor - specifically an oversupply of most skill sets relative to all the work that has to be done according to socially mediated decision processes (a different set of work than what "everybody" would like to happen as long as they don't have to pay for it, taking away from other necessary or desired expenditure of money, effort, or other resources).

Maybe when the boomers age out and become physically too old to work, the balance will tip again.

Peter K. -> cm... , April 15, 2017 at 12:18 PM
"What automation and globalization have done is created a glut of labor - "

No it's been policy and politics. Automation and globalization are red herrings. They've been used to enrich the rich and stick it to everyone else.

They don't have to be used that way.

There is nothing natural or inherent about it. It's all politics and class war and the wrong side is winning.

cm -> Peter K.... , April 15, 2017 at 01:32 PM
OK - they have *enabled* it. The agency is always on the human side. But at the same time, you cannot wish or postulate away human greed.
cm -> Peter K.... , April 15, 2017 at 01:44 PM
Same thing with the internet - it has been hailed as a democratizing force, but instead it has mostly (though not wholly) amplified the existing power differentials and motivation structures.

Anecdotally, a lot of companies and institutions are either restricting internal internet access or disconnecting parts of their organizations from the internet altogether, and disabling I/O channels like USB sticks, encrypting disks, locking out "untrusted" boot methods, etc. The official narrative is security and preventing leaks of confidential information, but the latter is clearly also aimed in part at whistleblowers disclosing illegal or unethical practices. Of course that a number of employees illegitimately "steal" data for personal and not to uncover injustices doesn't really help.

Denis Drew -> cm... , April 15, 2017 at 03:19 PM
Surely there is a huge difference between the labor market here and the labor market in continental Europe -- though labor there faces the same squeezing forces it faces here. Think of German auto assembly line workers making $60 an hour counting benefits.

Think Teamster Union UPS drivers -- and pity the poor, lately hired (if they are even hired) Amazon drivers -- maybe renting vans.

The Teamsters have the only example here of what is standard in continental Europe: centralized bargaining (aka sector wide labor agreements): the Master National Freight Agreement: wherein everybody doing the same job in the same locale (entire nation for long distance truckers) works under one common contract (in French Canada too).

Imagine centralized bargaining for airlines. A few years ago Northwest squeezed a billion dollars in give backs out of its pilots -- next year gave a billion dollars in bonuses to a thousand execs. Couldn't happen under centralized bargaining -- wouldn't even give the company any competitive advantage.

libezkova -> Denis Drew ... , April 15, 2017 at 04:14 PM
"What's missing in each and every case above -- at least in the USA! -- is countervailing power."

It was deliberately destroyed. Neoliberalism needs to "atomize" work force to function properly and destroys any solidarity among workers. Unions are anathema for neoliberalism, because they prevent isolation and suppression of workers.

Amazon and Uber are good examples. Both should be prosecuted under RICO act. Wall-Mart in nor far from them.

Rising fatalities from heart disease and stroke, diabetes, drug overdoses, accidents and other conditions caused the lower life expectancy revealed in a report by the National Center for Health Statistics .

http://www.cdc.gov/nchs/products/databriefs/db267.htm

http://economistsview.typepad.com/economistsview/2017/03/paul-krugman-the-scammers-the-scammed-and-americas-fate.html#comment-6a00d83451b33869e201b7c8e3c7c6970b

== quote ==
Anne Case and Angus Deaton garnered national headlines in 2015 when they reported that the death rate of midlife non-Hispanic white Americans had risen steadily since 1999 in contrast with the death rates of blacks, Hispanics and Europeans. Their new study extends the data by two years and shows that whatever is driving the mortality spike is not easing up.
... ... ..

Offering what they call a tentative but "plausible" explanation, they write that less-educated white Americans who struggle in the job market in early adulthood are likely to experience a "cumulative disadvantage" over time, with health and personal problems that often lead to drug overdoses, alcohol-related liver disease and suicide.

== end of quote ==

Greed is toxic. As anger tends to accumulate, and then explode, at some point neoliberals might be up to a huge surprise. Trump was the first swan.

Everybody bet on Hillary victory. And then...

[Jul 12, 2017] Ever more official lies from the US government by Paul Craig Roberts

Notable quotes:
"... John Williams counts the long term discouraged workers (discouraged for more than one year) who formerly (before "reforms") were counted officially. When the long term discouraged are counted, the US unemployment rate is in the 22-23 percent range. This is born out by the clear fact that the labor force participation rate has been falling throughout the alleded "recovery." Normally, labor force participation rates rise during economic recoveries. ..."
"... It is an extraordinary thing that although the US government itself reports that if even a small part of discouraged workers are countered as unemployed the unemployment rate is 8.6%, the presstitute financial media, a collection of professional liars, still reports, in the face of the government's admission, that the unemployment rate as 4.4%. ..."
Jul 12, 2017 | www.unz.com

The "recovery" is more than a mystery. It is a miracle. It exists only on fake news paper.

According to CNN, an unreliable source for sure, Jennifer Tescher, president and CEO of the Center for Financial Services Innovation, reports that about half of Americans report that their living expenses are equal to or exceed their incomes. Among those aged 18 to 25 burdened by student loans, 54% say their debts are equal to or exceed their incomes. This means that half of the US population has ZERO discretionary income. So what is driving the recovery?

Nothing. For half or more of the US population there is no discretionary income there with which to drive the economy.

The older part of the population has no discretionary income either. For a decade there has been essentially zero interest on the savings of the elderly, and if you believe John Williams of shadowstats.com, which I do, the real interest rates have been zero and even negative as inflation is measured in a way designed to prevent Social Security cost of living adjustments.

In other words, the American economy has been living on the shrinkage of the savings and living standards of its population.

Last Friday's employment report is just another lie from the government. The report says that the unemployment rate is 4.4% and that June employment increased by 222,000 jobs. A rosy picture. But as I have just demonstrated, there are no fundamentals to support it. It is just another US government lie like Saddam Hussein's weapons of mass destruction, Assad's use of chemical weapons against his own people, Russian invasion of Ukraine, and so forth and so on.

The rosy unemployment picture is totally contrived. The unemployment rate is 4.4% because discouraged workers who have not searched for a job in the past four weeks are not counted as unemployed.

The BLS has a second measure of unemployment, known as U6, which is seldom reported by the presstitute financial media. According to this official measure the US unemployment rate is about double the reported rate.

Why? the U6 rate counts discouraged workers who have been discouraged for less than one year.

John Williams counts the long term discouraged workers (discouraged for more than one year) who formerly (before "reforms") were counted officially. When the long term discouraged are counted, the US unemployment rate is in the 22-23 percent range. This is born out by the clear fact that the labor force participation rate has been falling throughout the alleded "recovery." Normally, labor force participation rates rise during economic recoveries.

It is very easy for the government to report a low jobless rate when the government studiously avoids counting the unemployed.

It is an extraordinary thing that although the US government itself reports that if even a small part of discouraged workers are countered as unemployed the unemployment rate is 8.6%, the presstitute financial media, a collection of professional liars, still reports, in the face of the government's admission, that the unemployment rate as 4.4%.

Now, let's do what I have done month after month year after year. Let's look at the jobs that the BLS alleges are being created. Remember, most of these alleged jobs are the product of the birth/death model that adds by assumption alone about 100,000 jobs per month. In other words, these jobs come out of a model, not from reality.

Where are these reported jobs? They are where they always are in lowly paid domestic services. Health care and social assistance, about half of which is "ambulatory health care services," provided 59,000 jobs. Leisure and hospitality provided 36,000 jobs of which 29,300 consist of waitresses and bartenders. Local government rose by 35,000. Manufacturing, once the backbone of the US economy, provided a measly 1,000 jobs.

As I have emphasized for a decade or two, the US is devolving into a third world workforce where the only employment available is in lowly paid domestic service jobs that cannot be offshored and that do not pay enough to provide an independent existance. This is why 50% of 25-year olds live at home with their parents and why there are more Americans aged 24-34 living with parents than living indepenently.

This is not the economic profile of a "superpower" that the idiot neoconservatives claim the US to be. The American economy that offshoring corporations and financialization have created is incapable of supporting the enormous US debt burden. It is only a matter of time and circumstance.

I doubt that the United States can continue in the ranks of a first world economy. Americans have sat there sucking their thumbs while their "leaders" destroyed them.

(Republished from PaulCraigRoberts.org by permission of author or representative)

[Mar 31, 2017] http://www.calculatedriskblog.com/2017/03/weekly-initial-unemployment-claims_30.html

Mar 31, 2017 | www.calculatedriskblog.com

"Weekly Initial Unemployment Claims decrease to 258,000"

by Bill McBride...3/30/2017...08:40:00 AM

The DOL reported:

..... In the week ending March 25, the advance figure for seasonally adjusted initial claims was 258,000, a decrease of 3,000 from the previous week's unrevised level of 261,000. The 4-week moving average was 254,250, an increase of 7,750 from the previous week's unrevised average of 246,500.

The previous week was revised up.

...This was above the consensus forecast.

The low level of claims suggests relatively few layoffs."
Reply Thursday, March 30, 2017 at 05:40 PM libezkova said in reply to im1dc... This "seasonally adjusted" magic is more like another flavor of statistical fraud... Because assumptions behind those adjustments are so wrong they are not even discussed.

Also McJobs and Walmart jobs -- anything paying below subsistence level are not actually jobs.

It's more like slavery. That's another nail in the coffin of "free market" ideology. What is so free in a person taking job in Wal Mart? Or any other McJob? That's neo-feudalism with Wal Mart as a huge feudal landlord and mass of desperate, hungry peasants.


Please note that around $100K jobs in the USA are needed just to accommodate growing workforce.

http://www.economicpopulist.org/content/how-many-jobs-are-needed-keep-population-growth

== quote ==

How Many Jobs Are Needed to Keep Up with Population Growth?

Submitted by Robert Oak on September 8, 2012 - 6:45pm

The press quotes all sorts of figures for the number of monthly job gains needed to keep up with population growth. We see numbers like 80,000, 100,000, 125,000 and 175,000 thrown around like statistical snow as the number of jobs needed each month just to keep up. What's the right one? How many jobs are needed each month just to keep up with population growth?

The actual monthly amount can be calculated and the Atlanta Fed even did us a huge favor by publishing an interactive monthly jobs calculator so you can go check for yourself. This month shows we need 104,116 payroll jobs to maintain the same unemployment rate of 8.1% with all of the other same terrible conditions the state of employment is in.
Reply Thursday, March 30, 2017 at 08:06 PM

[Sep 14, 2015] Conceptual pitfalls and monetary policy errors VOX, CEPR's Policy Portal by Andrew Levin

September 11, 2015 | voxeu.org

The conventional unemployment rate (U3) is now close to assessments of its longer-run normal level, but other dimensions of labour market slack remain elevated:

Thus, the 'true' unemployment rate – including hidden unemployment and underemployment –currently stands at around 7¼%, and the total magnitude of the US employment gap is equivalent to around 3½ million full-time jobs.

In particular, recent analysis indicates that the potential labour force is expanding by about 50,000 individuals per month due to demographic factors. Thus, if non-farm payrolls continue rising steadily by about 200,000 jobs per month (the average pace over the past six months), then the employment gap will diminish next year and be eliminated in mid-2017. By contrast, a tightening of monetary conditions would cause the economic recovery to decelerate and the pace of payroll growth might well drop below 100,000 jobs per month, in which case the employment gap would barely shrink at all.

The contours of the inflation outlook

The FOMC has established an inflation goal of 2%, as measured by the personal consumption expenditures (PCE) price index. Its recent communications have stated that the tightening process will commence once the FOMC is "reasonably confident" that inflation will move back to the 2% objective over the medium term.

Figure 1. The recent evolution of core PCE inflation

Note: In this figure, the core PCE inflation rate is given by the four-quarter average change in the PCE price index excluding food and energy, and the FOMC's outlook is given by the midpoint of the central tendency of core PCE inflation projections, as published in the FOMC Summary of Economic Projections (SEP) at each specified date.

For example, in early 2013, when core PCE inflation was running at about 1½%, FOMC participants generally anticipated that it would rise to nearly 2% over the course of 2014 and 2015, whereas in fact it has declined to around 1.2%. Indeed, its underlying trend has been drifting steadily downward since the onset of the last recession.

Moreover, as shown in my recent joint work with Danny Blanchflower, the wage curve exhibits some flattening at high levels of labour market slack, which explains why nominal wage growth has remained subdued over the past few years even as the employment gap has declined from its post-recession peak (see Figure 2). This empirical pattern also implies that the pace of nominal wage growth is likely to pick up somewhat over coming quarters as the employment gap declines further.

Figure 2. The wage curve

Note: In this figure, each dot denotes the pace of nominal wage growth (as measured by the 12-month change in the average hourly earnings of production and non-supervisory workers) and the average level of the employment gap (including hidden unemployment and underemployment) for each calendar year from 1985 to 2014 and for August 2015 (the latest BLS employment report).

Gauging the stance of monetary policy

Fed officials have recently characterised the current stance of monetary policy as "extremely accommodative." Such characterisations may be helpful in motivating the onset of "policy normalisation" but seem inconsistent with professional forecasters' assessments of the equilibrium real interest rate and with the implications of simple benchmark rules.

The distance between the current federal funds rate and its longer-run normal level depends crucially on the magnitude of the equilibrium real interest rate.

Over the past few years professional forecasters have made substantial downward revisions to their assessments of the 'new normal' level of interest rates.

Such revisions presumably reflect the downgrading of the outlook for potential output growth as well as prospects for headwinds to aggregate demand persisting well into the future.

In June 2012, then-Vice Chair Yellen noted that "simple rules provide a useful starting point for determining appropriate policy" while emphasising that such rules cannot be followed mechanically. That speech considered the Taylor (1993) rule along with an alternative rule analysed by Taylor (1999) that Yellen described as "more consistent with the FOMC's commitment to follow a balanced approach." Thus, it is instructive to evaluate each of these simple rules using the current core PCE inflation rate (which is 1.2%), the CBO's current assessment of the output gap (3.1%), and professional forecasters' consensus estimate of the equilibrium real interest rate (r* = 0.75).

Neither of these two benchmarks calls for a tighter stance of policy. Indeed, the 'balanced approach' rule preferred by Yellen (2012) indicates that macroeconomic conditions will not warrant the initiation of monetary policy tightening until sometime next year.

Assessing the balance of risks

Over the past 18 months, FOMC statements have regularly characterised the balance of risks to the economic outlook as "nearly balanced." Of course, that assessment has recently come into question due to a bout of financial market volatility in conjunction with shifting prospects for major foreign economies (most notably China).

Regardless of how financial markets may evolve in the near term, however, it seems clear that the balance of risks remains far from symmetric. If the US economy were to encounter a severe adverse shock within the next few years (whether economic, financial, or geopolitical in nature), would the FOMC have sufficient capacity to mitigate the negative consequences for economic activity and stem a downward drift of inflation?

For example, if safe-haven flows caused a steep drop in Treasury yields along with a sharp widening of risk spreads, would a new round of QE still be feasible or effective? Alternatively, would the Federal Reserve implement measures to push short-term nominal rates below zero, as some other central banks have done recently?

In the absence of satisfactory answers to such questions, it is essential for the FOMC to maintain a highly accommodative stance of monetary policy as long as needed to ensure that labour market slack is fully eliminated and that inflation moves back upward to its 2% goal. Such a strategy will help strengthen the resilience of the US economy in facing any adverse shocks that may lie ahead.

Concluding remarks

The FOMC's near-term strategy has become so opaque that even the most seasoned analysts can only guess what policy decisions may be forthcoming at its upcoming meetings. Moreover, the FOMC has provided no information at all (apart from the phrase "likely to be gradual") about how its policy stance will be adjusted over time in response to evolving macroeconomic conditions.

Unfortunately, such opacity is likely to exacerbate economic and financial uncertainty and hinder the effectiveness of monetary policy in fostering the goals of maximum employment and price stability. Therefore, it is imperative for the FOMC to formulate a systematic monetary policy strategy and to explain that strategy clearly in its public communications.

References

Economist's View Fed Watch Employment Report Keeps Policymakers on Their Toes

"To put this into some context, consider what it is we are measuring: The change in monthly hires minus fires. A monthly change in a labor force of more than 150 million people. That turns out to be a tiny net number relative to the entire pool -- about one tenth of one percent."
Tim Duy:
Employment Report Keeps Policymakers on Their Toes. by Tim Duy: Just about everyone (myself included) who ventured a payrolls forecast was crushed by the scant December gain of just 74k. How much should you adjust your outlook on the basis of just this one number? Not much, if at all. It is important to watch for trends in the data, and always keep Barry Ritholtz's warning in the back of your mind:
...we know from each month's revisions that the initial read is off, often by a substantial amount. It's a noisy series, subject to many errors and subsequent corrections.
To put this into some context, consider what it is we are measuring: The change in monthly hires minus fires. A monthly change in a labor force of more than 150 million people. That turns out to be a tiny net number relative to the entire pool -- about one tenth of one percent.
This is why I continually suggest ignoring any given month, and paying attention to the overall trend. That is the most useful aspect of the monthly NFP data...if you focus on the monthly numbers, you will be given so many false signals and head fakes that you cannot possibly trade on this information in an intelligent manner.
Indeed, the December number was mitigated by an upward revision to November, leaving the growth pattern looking very familiar:

EMPc011214

One interpretation of the December outcome was that it was largely weather related. One would think, however, that such an event would have a forecastable negative impact on payrolls. Regardless, the bigger message is that the monthly change in payrolls is a volatile series, and one should be wary of putting too much emphasis on either small or large gains.
Perhaps the real story then is that another existing trend in the data, the downward pressure on the unemployment rate from a falling labor force participation rate, continues unabated:

EMPa011214

Moreover, the pace of improvement in alternative measures of labor utilization is not accelerating and arguably appears to be slowing as might be expected if the formally cyclically unemployed increasingly become structurally unemployed:

EMPb011214

Altogether, I think the report can be neatly summed up as 1.) indicative of a more modest improvement in activity than suggested by actual and estimated GDP numbers for the final half of 2013 and 2.) suggestive of structural change in labor markets.
The employment report generally complicates monetary policymaking. Not the nonfarm payrolls numbers so much; that number will largely be written off as anomalous in the context of the overall trend. Indeed, this was the first word from Fed officials. St. Louis Federal Reserve President James Bullard, via the Wall Street Journal:
"I would be disinclined to react to one month's number. I think it's important to get future jobs reports and see if new trends are developing," said Mr. Bullard at a press briefing following remarks here to local business leaders.
Richmond Federal Reserve President Jeffrey Lacker offered similar sentiments:
"As a general principle, it's wise not to overreact to one month's employment report," Lacker said. "Employment has been growing along a pretty steady trend this year. It takes a lot more than one labor-market report to be convincing that the trend has shifted, and in my experience one employment report rarely has an effect by itself on monetary policy."
I think the Fed is generally committed to winding down asset purchases this year, and will not want to be overly sensitive to just one report (that said, they will be overly sensitive to one number if it fits their preferred policy path). Only a more significant change in the overall tenor of the data will alter the pace of tapering.
The drop in the unemployment rate, however, is something more of a challenge. The Evans rule simply isn't looking quite so clever anymore:

EMPd011214

Monetary officials generally believed not only that 6.5% unemployment was far in the future, but also that policy would become much more obvious as we approached that target because inflation pressures would be evident. Neither has been true. Not only has unemployment fallen more quickly than anticipated, but inflation remains stubbornly low. With regards to the former, officials increasingly see the decline in labor force participation as largely structural and outside the purview of monetary policy. Bullard, via the article quoted earlier:
Mr. Bullard signaled he wasn't particularly alarmed by a decline in labor force participation, saying it appears at the right level given current demographics.
And, via a nice Wall Street Journal interview with San Francisco President John Williams by Jon Hilsenrath:
We're still working hard on this issue of employment-to-population. Everybody is struggling with the puzzle of why the employment-to-population ratio has stayed low. To what extent are movements in labor force participation structural or cyclical? And to what extent can monetary policy have an influence on those developments? I think the majority of the decline in the participation rate is due to structural factors related to the aging of the population and people going into disability. Very few people come back into the labor force from that. I do think part of it is cyclical. The data in the next year or so are going to inform us better about what is the trend.
With each passing month policymakers are increasingly comfortable taking the unemployment rate at face value. That means they increasingly expect the inflation numbers to pick up. Back to Williams:
As the unemployment rate continues to come down, utilization continues to go up, as the economy continues to improve, I would expect the underlying inflation rate to track back towards 2%.
But he clearly recognizes the potential for inflation to remain low:
The second question is why is inflation so low? To what extent does it reflect just some transitory influences, such as health care costs, and to what extent is it really reflecting a persistent ongoing inflation trend that is too low? And again how can monetary policy affect that? We're in this world where inflation doesn't move around a lot around 2%. It has become hard to model and to know exactly what are the factors causing inflation to be too low and which are the ones that are going to help bring it back to 2%. That gets to the downside risk question. If inflation does stay stubbornly low, that obviously is an argument for more monetary accommodation than otherwise.
Likewise, Bullard shares these concerns:
Mr. Bullard said he continues to watch inflation closely, saying it should rise as the economy picks up and the jobless rate continues to fall. But the central banker added he wants to actually see that rise come to fruition as the Fed assesses further tapering of its bond-buying.
"If inflation stepped lower in a clear way, I think that would give me some pause," Mr. Bullard said. "I'm looking for signs inflation is going to come back."
So where does this leave us? First of all, I think the Evans rule is already for all intents and purposes defunct. The unemployment rate is just a hair away from 6.5%, and the Fed has no intention of considering raising rates anytime soon. Second, there probably isn't a replacement for the Evans rule in the works. Bullard:
He expects the Fed for now to hold its threshold for unemployment at 6.5%. The Fed has said it won't increase interest rates until the jobless rate falls below that level so long as inflation stays contained.
"Moving (thresholds) around too much is likely to damage our credibility," Mr. Bullard said
And Williams on not setting a lower bound for inflation:
My view is the current [Fed policy] statement does a good job of capturing the fact that once unemployment gets below 6.5%, then obviously we'll be taking seriously what is happening in inflation, we will be looking at what is happening with employment and growth and everything, and then we'll be judging what is the appropriate stance of policy. It just gets very complicated quickly when you start adding more and more clauses about what conditions would you or would you not raise interest rates. Unfortunately, that is the game we're playing … the FOMC statement has gotten awfully long. It has gotten awfully complicated. The statement is probably better used to try to emphasize the key points as opposed to trying to explain everything in our thinking.
My sense is that they thought the Evans rule was clever and simple, but it turns out that fixed numerical objectives are not quite so simple. Well, multiple numerical objectives are not quite so simple. The ironic outcome to the Evans rule experiment is that policy communication would arguably have been smoother if the Fed simply emphasized an inflation target. Policymakers could have been agnostic on the reasons for the declines in labor force participation; it was irrelevant given the path of inflation. Perhaps the focus on the unemployment rate was something of an unnecessary complication that now needlessly leaves the impression that policy will soon turn more hawkish than is the case.
Thus, the third takeaway is that policy is now largely about inflation (although arguably it always is always about inflation). Ann Saphir and Jonathon Spicer at Reuters:
Stubbornly weak inflation is shaping up as the wild card for U.S. monetary policy makers this year, with top Federal Reserve officials stumped by why it has lingered so low for so long and at odds as to what to do about it.
As the Fed wrestled through last year with deciding when to start trimming its massive bond-buying stimulus, the bulk of attention was focused on the unemployment rate, which until recently has been slow to fall following its spike up to 10 percent during the recession.
By last month, policy makers had grown confident enough in the job market to dial back on the program. Figures released Friday showed the jobless rate fell to a five-year low of 6.7 percent in December, despite the smallest monthly job gains in three years. With much of the hiring slowdown attributed to bad weather, however, many analysts say the Fed will stay on track with plans to end bond buying by late this year.
But there is a hitch: inflation has been drifting down for much of the last two years, measuring a feeble 1.1 percent in November by the Fed's preferred gauge.
As long as inflation reverts to target slowly (with a caveat to be noted below), the Fed will not be quick to hike rates. But the Fed will be increasingly nervous that a sudden burst of inflation means they are behind the curve. Williams:
Whether we cut purchases by 10 billion a month or not, we still have a very accommodative stance of policy and that is going to stay with us for quite some time. That is where I worry. If the economy really picks up or inflation or risks to financial stability really do start to emerge in a serious way, we need to be able to move policy back to normal, or adjust policy appropriately, in a timely manner. It's always a difficult issue. This time it is just a much greater risk because we're in a much more accommodative stance of policy.
I think it will be the sensitivity to positive inflation surprises that has the potential to add a hawkish tenor to policymaking. Without those surprises, policy will continue along current expectations. There is a caveat - note that Williams essentially admits that the possibility and willingness to use monetary policy to address financial stability. Triple mandate. Watch for it.
Bottom Line: I don't see much in the employment report to indicate any fundamental change to existing trends. Nor do I anticipate any change in policy. Tapering is likely to continue at its modest pace. As expected, the Evans rule is defunct, and it doesn't seem like policymakers are inclined to replace it with another set of fixed numerical guidelines. The primary driver of policy is now the pace of incoming data relative to the inflation outlook. Financial stability is probably something like a third-order concern at this point, at least as far as monetary policy is concerned. But that could change.
bakho said...

The problem with the Evans rule is using U3 rather than U6.

U3 provides are poor measure of full employment. It is too rosy.
We need wage inflation to recover demand. An inflation target of 2 percent is too low.

kharris said in reply to bakho...

This is where a tolerance for human suffering comes in handy. The U6 rate is the right one, on the assumption that there is a good bit of cyclical unemployment that is masked in the U3 rate. If, however, you believe hysteresis is at work turning cyclical unemployment into structural unemployment, then as time passes, the argument for easy monetary policy diminishes. "Sure wish we had done a better job boosting employment when unemployed workers were still employable. We didn't, and they are no longer employable, so our job here is done."

Yellen's first speech as a confirmed soon-to-be Fed chair focused on boosting employment. Maybe she will have ideas of her own about the right pace of tapering. Inflation surely offers flexibility, but ya gotta have hope for boosting employment through asset purchases, and most folks don't have much of that.

Reply Monday, January 13, 2014 at 08:51 AM cm said in reply to kharris...

I don't believe it. Dotcom has shown that all kinds of interesting characters were employable when work had to be done "here and now" or money would have been left on the table. The only thing that will lead employers to "compromise" and look out side Mr/Ms Right is urgent demand for labor, more than can be easily filled with first choice candidates. It's like when you need immediate medical/dental attention and none of the doctors you know or your friends recommend have appointments - then you will go to somebody else who you don't know. If it's not so urgent, maybe you take an appointment next month.

[Nov 23, 2009] Reader Emails on Birth/Death Model and Unemployment Rate

I have gotten many question about revisions to the Reader Emails on Birth/Death Model and Unemployment Rate.

In case you missed it the BLS has admitted that its Birth/Death Model has overestimated jobs by about 800,000. The New York Times talked about this in Jobs Vanish.

The Labor Department said that it planned to revise the job figures by subtracting more than 800,000 jobs that it had wrongly estimated were filled by workers.

The so-called "benchmark revision" that was announced today will not formally be incorporated into the job figures until February, and could be revised. But the figures indicate that last March the government overestimated the total number of jobs by 824,000, or 0.6 percent. Its overestimate of private-sector employment was even greater - 855,000 jobs, or 0.8 percent.

The culprit is probably the much maligned birth-death model, although Victoria Battista, an economist at the Bureau of Labor Statistics, said the bureau was looking into other possible issues, such as changing response rates to the questionnaire sent out by the bureau to employers each month.

That model adds in jobs assumed to have been created by employers who are too new to have been added to the survey, and subtracts jobs from employers assumed to have failed and therefore not responded to the bureau's survey.

I have been complaining for years that the Birth/Death model was on Mars.

I include in every monthly jobs post a statement similar to this one: "At this point in the cycle birth death numbers should have been massively contracting for months. The BLS is going to keep adding jobs through the entire recession in a complete display of incompetence."

At least they finally understand there is a problem, years after it was obvious to anyone using some semblance of common sense.

Birth Death Model Revisions 2009

click on chart for sharper image

Given those fantasyland projections I have serious doubts that 800,000 take aways is enough.

Short Comings In BLS Birth Death Model

Inquiring minds are reading Recession shows shortcomings in U.S. economic data.

The U.S. government is having a tough time guesstimating how many small businesses failed in this recession, casting doubt on the reliability of vital data on employment and economic growth.

The formula the U.S. Labor Department designed to help it deliver timely, thorough monthly employment reports broke down in the heat of the financial crisis, miscounting the number of jobs by an estimated 824,000 in the year through March.

That model appears to have misjudged how many companies went out of business during the recession, meaning the labor market was even weaker than initially thought when President Barack Obama took office in January. More recent figures may still be underestimating job losses now, but it will be many months before the Labor Department is certain.

One characteristic of this recession is that it has hit small businesses especially hard, driving down demand and choking off vital sources of credit at the same time.

Jan Hatzius, an economist at Goldman Sachs in New York, thinks that is distorting not only the employment data, but also figures for retail sales, durable goods and even the biggest economic indicator of all -- gross domestic product.

Indeed, 43,546 businesses filed for bankruptcy in 2008, the highest tally since 1998, and the pace has picked up this year, according to data from the American Bankruptcy Institute.

In the second quarter of 2009, the most recent data available, 16,014 businesses filed for bankruptcy, up from 14,319 in the previous three-month period and the highest mark in 16 years.

The Labor Department simply can't catch all those failures fast enough to compile its monthly employment reports, which are normally released on the first Friday after the end of the month. So it must make an educated guess.

Each month, the department surveys about 160,000 firms to get a sense of how many jobs were added or cut. It also uses the "birth-death" model to try to estimate out how many companies opened or closed.

Once a year, the department looks at unemployment insurance tax records to get a more accurate picture of how many people were employed, and matches that up with its own data. Each February, it tries to reconcile these differences by releasing a "benchmark revision".

Normally, the discrepancy is modest. This coming February, it is likely to be about 824,000, according to the Labor Department's preliminary estimate last month. That would mean instead of about 7.2 million jobs lost since the start of the recession in December 2007, there were more like 8 million.

"Preliminary research indicated that a big portion of that was a result of a breakdown in the birth-death model," said Chris Manning, the department's benchmark branch chief.

Somehow throughout this entire recession, the BLS model showed that more jobs were being created by new businesses (birth) than those lost by businesses going out of businesses. When you think about all the small 1-2 person businesses in real estate that folded shop I just do not buy the BLS's data.

They are revising it, but I do not think by enough.

Reader Question On The Unemployment Rate

Kevin (and many others have asked) "What exactly do you think is going to happen to all these missed unemployed people? Is the unemployment rate going to spike in January, or does it get added in gradually?"

In terms of the unemployment rate, what happens is nothing. The unemployment rate is measured by the Household Survey not the Establishment Survey. The Birth/Death Revisions are to the Establishment Survey.

So while there will be dramatic revisions to the Establishment Survey in terms of jobs lost in the January report (published on the first Friday in February), it will not affect the unemployment rate.

Given how screwed up the Establishment Survey is (not that I have any love affair with the Household Survey), when the economy does turn it will likely show up in the Household Survey first. This is what happened at the end of the last recession and it will likely happen again.

There has to be a better way than either of these methods.

Manning said his department was still trying to figure out what went awry this time. One possibility is that the model was not sensitive enough to the credit crunch, which choked off borrowing and pushed many companies into bankruptcy.

"We're researching ways to better understand the limitations of the model, in particular when it comes to responding to economic shocks," he said.

Manning said his department was still trying to figure out what went awry this time. One possibility is that the model was not sensitive enough to the credit crunch, which choked off borrowing and pushed many companies into bankruptcy.

"We're researching ways to better understand the limitations of the model, in particular when it comes to responding to economic shocks," he said.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

Pseudonymous:

"That's one of the best firsts in history. I love this. 800,000 jobs falsely added. So where does that put the unemployment rate? is my burning question.

I do love their little deceptive touches. I love how they're going to do the revisions in February, so that nothing will disturb the nation's psychological security - for example, a sudden revising upward of the unemployment rate above 11%.

The recovery is a combination of reflation, Fed leverage, massive government spending, Wall Street corruption feeling sated and happy about itself again, and a blanket of renewed false optimism spread tightly across the face of proletarian America.

We'll save the revisions for later.

brianinboise:

"Pseudonymous, Mish addresses your question in the latter part of his post:
Kevin (and many others have asked)

"What exactly do you think is going to happen to all these missed unemployed people? Is the unemployment rate going to spike in January, or does it get added in gradually?"

In terms of the unemployment rate, what happens is nothing. The unemployment rate is measured by the Household Survey not the Establishment Survey. The Birth/Death Revisions are to the Establishment Survey.

So while there will be dramatic revisions to the Establishment Survey in terms of jobs lost in the January report (published on the first Friday in February), it will not affect the unemployment rate.

Shake:

"Forget about the unemployment numbers. All one needs to look at is total employment as a percentage of the population. That number has been going down for 10 years.

James Cole:

"Recent news stories have claimed that as the year comes to an end, around 1 million unemployed will have used up all available benefits. As a nice coincidence, their benefits ending will begin to take hold just as Banks and Wall-Street firms begin to payout year end bonuses. Figures vary, but all told it is going to be way up into the tens of billions. It should make for an nice holiday contrast. The bailed out bankers and wall-street crowd will cash in fortunes enough to last any normal person half a life time or more. That this is only possible due to Taxpayer payouts to the financial services industry shouldn't spoil the gusto of the banker's and street firm's holiday festivities.
Lets all wish them well in spending their riches. New homes, new cars, new mistresses, luxury clothes and vacations should be a noticeable boost to a sagging consumer economy. The Fed has done it's work well, and there are the payouts to prove it.

jkiss:

"Mish

If you add up the household survey job losses this recession (B2) you get just over 9M as of Oct. HS is very volatile, but if you look at trailing 3-month avg numbers you get a pretty smooth and IMO accurate story of what is happening to headline jobs (you could plot and post this). HS shows that real job losses began in dec 06, a year before the recession supposedly began.

Oct was particularly troubling because it shot back up to over 500k, completely reversing the Jun-Jul low numbers. Not a good sign.

I downloaded the spreadsheet with future job loss guesstimates... consider 400k balance of this year, 200k avg 2010, 0 in 2011, and then just enough to maintain status quo (100k) for four years. Where, exactly, are the new jobs coming from? Boomers will let the SUV's slip from their cold, dead hands before letting loose of their jobs...

GT :

"So the NYT has written about the US government's penchant for lying in its stats?

Next thing the NYT will show that it's catching up by promulgating the idea - 10 years after sentient beings knew it - that Greenspan was a hack moron who failed as a consultant and HAD to suckle at teh tax teat to avoid dying of starvation?

Or they might reveal that Keynes studied economics for precisely ONE term (note: not a semester - a TERM... shorter) and got his job through nepotism.

For the record, I first wrote about the CES birth-death model back in 2001 (sadly the archive of the place I was at is now no longer online).

To give a favour, here's something from DECEMBER 2004 which is still online (at http://www.marketmentat.com/markets/oz/jobs-report-even-worse-than-it-looked/)...

"The CES net birth death model – which I prefer to call the "fictional job creation" model – added 54,000 phantom jobs, which (as luck would have it) offset the 54,000 downward revision to September and October!!!

So, there's been a 54,000 "reduction of history", offset by 54,000 phantoms. Without those phantoms, the job situation in the US looks dire; and phantoms don't spend anything – not even on hedonically adjusted stuff."


There is nothing new under the sun - just as the central planners of the old Soviet Union used to regularly lie to their proles, so too the ponerocracy of the US does likewise, while shovelling money to their cronies in ways that would make an African dictator blush.

Fortunately (for the brown bits of the world) the US is now last century's story, much as England was waning in the first third of the 20th century and Rome was on the skids after it started clipping its coin.

Cheerio


[Nov 21, 2009] Birth Death Model Outpaced By Business Failures By Barry Ritholtz

November 21st, 2009 | The Big Picture

"Our conclusion is that if small firms aren't captured well in the advance GDP data, the economy may be growing less quickly than suggested by the recent official data."

-Jan Hatzius, Goldman Sachs economist

This certainly comes as no surprise to us:

"The U.S. government is having a tough time guesstimating how many small businesses failed in this recession, casting doubt on the reliability of vital data on employment and economic growth.

The formula the U.S. Labor Department designed to help it deliver timely, thorough monthly employment reports broke down in the heat of the financial crisis, miscounting the number of jobs by an estimated 824,000 in the year through March.

The most likely culprit is the so-called "birth-death" model, which the Labor Department uses to estimate how many companies were created or destroyed.

That model appears to have misjudged how many companies went out of business during the recession, meaning the labor market was even weaker than initially thought when President Barack Obama took office in January. More recent figures may still be underestimating job losses now, but it will be many months before the Labor Department is certain . . .

Government data has difficulty gauging the health of smaller firms because there are simply too many of them, leaving officials to rely on surveys and models that are hit and miss."

Let's put some numbers to this: In 2008, 43,546 businesses filed for bankruptcy; Even more are filing in 2009 - Q2 of 2009, the most recent data available, saw 16,014 bankruptcy filings - on pace to run 33% more than the prior year.

BLS simply does not catch all of these failures in the monthly NFP reports.

The next BLS B/D adjustment will be in February 2010, when they qill like add another 800,000 to a million lost jobs to the prior years . . .

Source:
Recession shows shortcomings in U.S. economic data
Thu Nov 19, 2009
Emily Kaiser and Nancy Waitz
Reuters
http://www.reuters.com/article/GCA-Economy/idUSTRE5AI56420091119

[Oct 4, 2009] Birth Death Adjustment Coming Under Fire By Barry Ritholtz

October 4th, 2009 | The Big Picture

One of our favorite bugaboos is finally getting its due: The horrifically misleading Birth Death adjustment.

It is finally being recognized in the mainstream as the massive data distorter that it is. The latest BLS analysis and data revision shows that during 2008, the Birth Death adjustment caused NFP payrolls to be significantly under reported.

NYT's Floyd Norris:

"It now appears that during the first half of 2008, when the recession was getting under way, job losses averaged 146,000 per month. That is nearly three times the average of 49,000 jobs shown in the initial estimates.

How did the government get it so wrong?

The official job numbers are based on a monthly survey of employers, augmented by something called the "birth-death model," which factors in jobs assumed to have been created by employers who are too new to have been included in the survey, and subtracts jobs from employers assumed to have failed and therefore not responded to the latest survey." (emphasis added)

Triple the job losses than reported, and right at a crucial part of the economic cycle! Is it any wonder policy response from central bankers and pols was so off? At the most crucial time, they failed to see the oncoming headlights, because they were lost in a fog of data so massaged as to have it completely and totally misrepresent reality.

About time this nionsense was recognized for the bullshit it is. We need to have BLS needs to toss out the 2003 modification to the B/D. We should get back to actually counting, rather than imagining, jobs.

As noted in Bailout Nation, this fundamental reliance on garbage data led to one of the world's greatest economic catastrophes of all time.

Reality matters.

Previously:
NFP: Birth/Death Adjustments (December 6th, 2007)
http://www.ritholtz.com/blog/2007/12/nfp-birthdeath-adjustments/

Overstated Job Growth, Understated Inflation (January 4th, 2008)
http://www.ritholtz.com/blog/2008/01/overstated-job-growth-understated-inflation/

Source:
The Jobs News Gets Worse
FLOYD NORRIS
NYT, October 3, 2009
http://www.nytimes.com/2009/10/04/weekinreview/04norris.html

Historical Net Birth/Death Adjustments
http://www.bls.gov/ces/cesbdhst.htm

CES Net Birth/Death Model
Current Employment Statistics – CES (National)
http://www.bls.gov/web/cesbd.htm

  1. Greg0658 Says:

    BR @ top "We should get back to actually counting, rather than imagining, jobs"

    I'm just about sure the banks super-computerized infrastructure does (or could/should). That would be very valuable right. But we don't share value, people pay for it. Government included. Get your own info. So what does that realization bring. Maybe banks should be DISallowed to trade in markets .. ie insider information paid for by all of us.

Unemployment Report Distortions by Chris Martenson

August 7, 2009

The release of the July unemployment report was filled with a wide array of distortions and inexplicable results (especially from the Birth-Death model), which have undoubtedly resulted in a better-than-warranted reported gain. In this post we'll explore these oddities in some detail.

The news:

U.S. economy sheds fewer jobs than expected

WASHINGTON (Reuters) - U.S. employers cut 247,000 jobs in July, far less than expected and the least in any month since last August, according to a government report on Friday that provided the clearest evidence yet that the economy was turning around.

With fewer workers being laid off, the unemployment rate eased to 9.4 percent in July from 9.5 percent the prior month, the Labor Department said, the first time the jobless rate had fallen since April 2008.

Wait, how can you lose jobs and have the rate of unemployment fall? This doesn't make sense, because it is the equivalent of saying, "I spent more than I earned and my savings went up." The key here is understanding the ways in which the government measures unemployment.

First, job gains/losses are measured by a sampling of businesses (called the "establishment" data). This gives us the headline number of 247,000 jobs lost. Second, the rate of unemployment comes from a completely different sample, this one of households, which gives us the 9.4% rate of unemployment.

As always, the devil is in the details. Without the Birth-Death model providing the largest addition of jobs in its entire series for July, the 247,000 jobs lost number would have been higher.

The table below shows the contributions or subtraction of jobs provided by the Birth-Death model in each month of July since its creation. This July sports the highest addition ever:

Normally, July and January are "true-up" months, where all the past overstatements of the Birth-Death model are cleaned up.

Does it make sense to you that this July, out of all months, the Birth-Death model should be showing the largest monthly gain in the series? It makes sense to me that July 2006 could have squeaked out a positive, since that was at the tail end of a strong period of growth. But July 2009? No, not even in the slighest.

If the B-D model had turned in a far more normal looking -60k to -80k result, then the number of reported lost jobs would have been in the range of 350,000 job losses, not the 237,000 reported.

However, I would have expected the fact that the B-D model has added 879,000 this year since the last true-up in January, during the worst period of economic growth since the Great Depression, to have been a strong indication that this July would have resulted in one of the largest negative July adjustments on record. Instead we got the strongest positive one!!

This is simply so far out of the bounds of "reasonable" that I am almost out of words.

But it gets worse.

In the table below showing the Household data (source), we can see that the way in which the rate of unemployment dropped from 9.5% to 9.4% was almost entirely due to the fact that 637,000 people were dropped from the labor force - not from an increase in employment.

If we left these 637,000 people in the labor force, then the rate of unemployment would have increased from 9.5% to 9.8%. What's the difference between unemployment slipping to 9.4% rather than increasing to 9.8%?

All the difference in the world when you have a major initiative underway:

[Note: I am not displaying any sort of partisan or political bias in posting this news item - I am devoutly non-partisan and my track record spanning administrations will bear this out.]

Obama Setting Out to Put Brighter Face on Economy

August 4, 2009

WASHINGTON - The White House is making a major push this week to persuade Americans that President Obama's policies are helping bring the nation out of recession. But a four-letter word - jobs - may well get in the way.

With poll numbers showing that support for Mr. Obama's handling of the economy has declined, the president and other top administration officials - Vice President Joseph R. Biden Jr., Energy Secretary Steven Chu and Commerce Secretary Gary Locke - will hit the road on Wednesday in a coordinated show of force.

They will try to make the case, as the president said Saturday in his weekly address, that "in the last few months, the economy has done measurably better than expected."

They have some statistics to back them up.

If you are wondering about the political pressure that propels the BLS (et al.) to produce misleading but favorable economic statistics, you need look no further than this article. Obama, like every president before him, has a strong desire to use his station to inject optimism into the economy. That's hard to do when the statistics are dismal, so every effort is made to have them be brighter and more favorable than they really are. Same as it ever was.

Bad statistics can be good for politicians, but not so much for sound decisions.

Do we have the "clearest evidence yet that the economy is turning around," as the original article claimed above, or do we have evidence of something else, like, perhaps, statistical trickery?

[May 17, 2008] Data To Die For

May 9, 2008

How can we realistically trust the data that come out of the various US departments anymore? Even given the benefit of the doubt, i.e. assuming model massage was originally established to provide a clearer picture of the US economy, the ultimate result now looks more like an elaborate GIGO * contraption designed by Rube Goldberg.

Case in point: the Net Birth/Death model of the Bureau of Labor Statistics. During the most severe downturn in the real estate and homebuilding sector since the Great Depression, the model keeps creating phantom construction jobs (see chart below, click to enlarge).


Not only did the model spew out a total of 98,000 net additional construction jobs in the 12 months to April 2008, it produced more such jobs in April 2008 than the same month last year (45,000 vs. 37,000, or +21%). In other words, new construction businesses that were established in that period supposedly created many more jobs than those lost from businesses shutting down.

The first casualty of war is the truth - Aeschylus. Problem is, who's the enemy?


_____________________
*Garbage in, garbage out



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The Last but not Least


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Last modified: October 01, 2017