The stunning magic of Houdini and David Copperfield is no match compared to the abominable magic that the BLS will display on February 5, when it will make 824,000 jobs vanish. How does the BLS perform this trick? It revises its birth/death ratio (that’s jobs, not people) to show that 824,000 less jobs were created than they thought for the period April 2008 to March 2009. That’s nearly 69,000 less jobs per month. So instead of losing 4.8 million jobs during that time period, the US actually lost 5.6 million jobs! Bloomberg has some interactive graphs that show the changes in the job totals. I’ll post a couple of the graphs below, but take a look at Bloomberg for other details:

birth-death

Now let’s look at the revised numbers:

birth-death1


What’s amazing about this revision is that it won’t show up in the upcoming unemployment numbers for January 2010. As a result, 824,000 lost jobs will simply vanish into the night of BLS data.

BLS Black Box

For those unfamiliar with the birth/death model, monthly jobs adjustments are made by the BLS based on economic assumptions about the birth and death of businesses (not individuals). Those assumptions are made according to estimates of where the BLS thinks we are in the economic cycle.

The BLS has admitted however, that their model will be wrong at economic turning points. And there is no doubt we are long past an economic turning point.

Here is the pertinent snip from the BLS on Birth/Death Methodology.

  • The net birth/death model component figures are unique to each month and exhibit a seasonal pattern that can result in negative adjustments in some months. These models do not attempt to correct for any other potential error sources in the CES estimates such as sampling error or design limitations.
  • Note that the net birth/death figures are not seasonally adjusted, and are applied to not seasonally adjusted monthly employment links to determine the final estimate.
  • The most significant potential drawback to this or any model-based approach is that time series modeling assumes a predictable continuation of historical patterns and relationships and therefore is likely to have some difficulty producing reliable estimates at economic turning points or during periods when there are sudden changes in trend.

The BLS used the same birth/death model during the current economic crises – the worst since the Great Depression – as it used for the housing boom period of 2003 to 2007. How can they use the same model in completely different times? Would the government have responded sooner and more dramatically if it knew that 824,000 more people were not working? Would Congress have been more involved with economic matters if it had more reliable information?

While the vanishing of 824,000 jobs from April 2008 through March 2009 seems bad enough, the BLS birth death model may add 990,000 for the April 2009 through December 2009 period. The final results for that period won’t be available until February 2011, but if they are anything like the figures being released for this year, the results will show that the BLS numbers are out of step with reality.

See the BLS for a description of their birth/death model and the Changes to the Employment Situation News Release on February 5, 2010.

Jerry Holbert

Jerry Holbert




 

 

 


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