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Unemployment Report Distortions

Friday, August 7, 2009, 7:49 AM

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?

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34 Comments

Jeff Borsuk's picture
Jeff Borsuk
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Re: Unemployment Report Distortions

These numbers aren't fuzzy anymore...they're down right hairy!

Jeff

DumbMoney's picture
DumbMoney
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Re: Unemployment Report Distortions

Excellent as usual Chris, thanks.

I'll add that, for this month in particular, it's worth mentioning the seasonal adjustment.  In the establishment data, before seasonal adjustments 1.333 million jobs were lost.

hughacland's picture
hughacland
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Re: Unemployment Report Distortions

Thanks Chris - this just goes to show that statistics can be manipulated to make any point.

Surely the best way to get a true picture is to count the number of people claiming dole? This will be accurate to the person. But I gather that even that figure might underestimate the true total as not all will be on the dole or will have dropped off after 12 months. At least it will give a lower limit and the rate at which new people are joing the dole will provide statistically sound evidence of the state of the jobs market.

bklement's picture
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Re: Unemployment Report Distortions

The BLS is only 1 letter away from being named correctly. 

Davos's picture
Davos
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Re: Unemployment Report Distortions

BkElement wrote:

"The BLS is only 1 letter away from being named correctly"

I'd agree. Sadly job numbers are one of the LEI/statistics if I recall correctly.

So a lot of investors are getting lead down the wrong path as economist look no further than the B_S number. I've removed the L in Labor. Enron would be proud.

Super read Chris. I've been looking at blogs reporting the real numbers, 150 million workers in 2006/2007 26 million under employed and unemployed today. I think that is about every man woman and child (legal and otherwise) in Texas right now.

I think it is worth mentioning that, if I'm correct in recall here, these numbers are only U3.

26 (U3/U6) million is 18%. I think the last ShadowStatistics number I read was pushing 21%. Maybe I'm wrong but I would myself consider that more severe than a recession and anything but a sign of recovery.

Numbers can't be conned for long.

Take care

mario's picture
mario
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Re: Unemployment Report Distortions

Thanks Chris

But if this month the numbers are distorted, July being "special", doesn't this mean that next month the results may suddenly look even worst? Or calculating this way, they can hide the real values forever?

Thanks, Mario.

Ready's picture
Ready
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Re: Unemployment Report Distortions

From Shadowstats - updated today:

Shadowstats

Ready's picture
Ready
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Re: Unemployment Report Distortions

This makes perfect sense too...

Quote:

Stocks were soaring this morning after the unemployment rate unexpectedly fell to 9.4% in July, the Labor Department reported this morning, the first drop in the rate since April 2008.

And job losses slowed last month to the lowest total since August 2008. U.S. nonfarm payrolls fell by 247,000 in July from an improved loss of 443,000 jobs in June. The initial June number was a loss of 467,000 jobs. Still, it was the 19th straight month of job losses.

At 11 a.m. ET, the Dow Jones Industrial Average ($INDU) was up 153 points, or 1.7%, to 9,409. The Nasdaq Composite Index ($COMPX) had gained 31 points, or 1.6%, to 2,004, and the Standard & Poor's 500 Index ($INX) had added 17 points, or 1.7%, to 1,014.

Economists had forecast a loss of between 275,000 and 325,000 jobs in July; they had expected the jobless rate to have risen to 9.7% last month.

Headless's picture
Headless
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Re: Unemployment Report Distortions

Chris,

Have you happened to have considered what the real world outcome would be if the stock market gets pumped enough to allow people (many who are unemployed) to replace their House ATMs with a DOW ATM?; I believe that is exactly what the agenda of Government Sachs is. However, and here is where your stealth monetization is very relevant, this method of sustaining the unsustainable depends on continuing Greenspan's (deficits don't matter) sacking of the world via Treasury issuance.

What scares me is that any kind of continued success in sacking the WORLD outside our borders, in said manner, will have catastophic results. Thus, Catch 22: Government Sachs acheives the monetization, thus allowing further sacking of the innocent populations of the planet, and there is something more than economic/trade retaliation, or Government Sachs fails...

My question to you: Can they continue to succeed at this game much longer? What, in your opinion, would be the results of them blowing another stock market bubble?

Thanks.

H

P.S. Edit: The above questions are asked as an extension of the presumption, aka, "Given," as we scientists know it, that the "Employment" report is just another fabrication used to achieve the larger agenda of "Saching" the planet, or as it is known among Government Sachs circles, "Restoring growth."

dcm's picture
dcm
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Re: Unemployment Report Distortions

Take a look at July 2008 vs 2009 in the Household Data length of unemployment

Gives a new name

to new and improved

http://www.bls.gov/news.release/empsit.t09.htm

Sam's picture
Sam
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Re: Unemployment Report Distortions

Heard Krugman on National Propaganda Radio yesterday. He says that the governmnet's numbers would never be manipulated for political gain. Kinda makes you wonder who put the fix in at Stockholm during the Nobel deliberations last year.

TheRemnant's picture
TheRemnant
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Re: Unemployment Report Distortions

I thought Kevin Philips article well written that serves as good background for the threads topic:

http://www.harpers.org/archive/2008/05/0082023

Cheers.

Sam's picture
Sam
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Re: Unemployment Report Distortions

Apologies. It was David Wessel of the War Street Journal that was on Dianne Rehm's show, not Krugman.

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Re: Unemployment Report Distortions

I actually noticed this number as soon as it was released on Bloomberg this morning. I was also puzzled as to how Unemployment numbers could improve when there was a net job loss. Apparently, the BLS didn't realize just how obvious their statistical manipulations are. Thanks for exposing this in depth, Chris.

Seeing yet another blatantly obvious manipulation angers me, especially when it is obvious to see the political motivation and connections that likely pressured these numbers to get tweaked this way. As near as I can tell, government manipulations and b.s. statistics occur the world over in varying degrees and have taken place for all of human history. But in an age where an internet connection can so rapidly dispose of these myths, I'm honestly a little surprised that this game is still apparently working for our government. The greatest laws of history remain intact: A) People don't learn from history, and B) Human nature is very nearly constant generation after generation.

It has been said that one of the reasons that Rome collapsed was greater political apathy on the part of each new generation. That trend seems to be alive and well in America. While there are many that care about the media-hyped "issues" that distract us each election cycle, it seems that very few are willing to take a strong stand to expose the corruption and fraud in the system. This is not a party issue and it's not even an ideological one, as the media would have us believe. It's an issue of fraud and corruption at its core. And yet, year after year, people seem to focus much more on entertainment than on understanding the mythological world in which they live.

Frustrated,
Mike

CB's picture
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Re: Unemployment Report Distortions

One important ramification of the unemployment "happy talk" and pumping up of the markets is that the impetus for addressing fundamental structural problems in the economy, including serious healthcare reform, is effectively dissipated. This, combined with lack of leadership, means that all debate has devolved into a cacophony of self-interested  voices pushing their own agenda. Don't expect any coherent strategy to emerge on any front - everyone is now banking on muddling through with as little personal sacrifice as possible.

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11% of Americans Using Foodstamps

!1% of Americans Living On Foodstamps

Gee, I wonder what "bucket" this statistic belongs in?

zulu's picture
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Re: Unemployment Report Distortions

I know this sounds optimistic, but the administration may have finally hung themselves with this one.  Even the mindlessly grazing herd that is 99% of Americans MUST at some point be sober enough to grasp that you can't lose a quarter million jobs and lower the unemployment rate.

Can anyone tell me what calamity it will take for at least some of the herd to snap out of their dreamlike state and recognize what their government is doing to them?

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cannotaffordit
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Re: Unemployment Report Distortions

Mike P. said:  "Apparently, the BLS didn't realize just how obvious their statistical manipulations are."

Gosh, I agree with you, except that these manipulations are not obvious to MOST Americans, who depend on MSM to find out what's going on in the country.  IMHO, the so-called news media are one of the major causes for idiocy like the current rise in markets, etc.  The vast number of Americans don't have a clue what's really going.  (There are still folks who'll argue about the Fed being a gov't entity.)  We're in sad shape in this country, primarily because of the loss of independent journalism. If we had real journalists, who regularly exposed the crap the gov't says and does, we'd already be in the midst of a revolution.  But when you get the total loss of integrity in a drink made up of government, big business and news media, all is lost.

Davos's picture
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Re: Unemployment Report Distortions

zulu wrote:

I know this sounds optimistic, but the administration may have finally hung themselves with this one.  Even the mindlessly grazing herd that is 99% of Americans MUST at some point be sober enough to grasp that you can't lose a quarter million jobs and lower the unemployment rate.

Can anyone tell me what calamity it will take for at least some of the herd to snap out of their dreamlike state and recognize what their government is doing to them?

OR

A.) Another crash. Reality lags perception, the statistical and media perception is bogus.

B.) The mad counterfieter will turn our dollar into a Zimbabwe dollar, I never saved the PDF but I read the CB of Zimbabwe report and it said to the effect, 'The US has launched the same printing campaign we did 4 years ago.'

And, oh by the way, that was before we broached the 2 trillion dollar deficit mark.

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Re: Unemployment Report Distortions

Interestingly Reuters seems to have reworded the article in the meantime. The paragraphs that you quoted above

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.

have become:

The U.S. unemployment rate fell in July for the first time in 15 months as employers cut far fewer jobs than expected, providing the clearest sign yet that the economy was turning around.

Employers shed 247,000 jobs in July, the Labor Department said Friday, the least in any one month since last August, taking the unemployment rate to 9.4 percent, down from 9.5 percent in June.

I am not a native English speaker but to me while the meaning is exactly the same, the faulty logic is less visible.

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Unemployment Report Distortions

why cant you people believe 637,000 waited til the last day to fine a job!!@#$^&%#@@

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Re: Unemployment Report Distortions

Ed:  This was a repost of the entire article.  I saw no need for this and removed it to save bandwidth.

Cloudfire's picture
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Punctuation Counts

bklement wrote:

The BLS is only 1 letter away from being named correctly. 

Perhaps a bit of punctuation could clarify the acronym . . . . May I suggest:  BS, L? 

Davos's picture
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Re: Unemployment Report Distortions

 Here is a chart that says it all.

Paul Bogdanich's picture
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Re: Unemployment Report Distortions

I find the actions of the FOMO more ominous.  To fund this reflation the bonds must be issued.  To the extent that they do not sell they must be monetized.  If the rate of monetization steadily increases because real demand steadily decreases then the game is over.  To me however the tell tale sign is this.  The primary dealers must know what is going on as they are the distribution conduit for the Fed money.  So when this last quarter these primary dealers dolled out more in bonuses than they earned in corporate profits that tellls me something.  They know their busisness model is not viiable past the point where the Fed stops funneling money into the system so they are taking their cash now while the taking is good.     

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Re: Unemployment Report Distortions

Unemployment figures have never revealed the full picture as a measurement of our economy, so it is bad enough that the figures are being distorted for political gain.  

The current economic situation is far worse than we realize:  There are few statistics being published on two groups that never drew unemployment when businesses close, and those are the self-employed and the "contract employees" who do not qualify for unemployment and have no access to services in the traditional format.  It would be quite interesting to see the figures for "unemployment" combined with the aforementioned two groups - I believe the numbers would be staggering and set historical records.

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Re: Unemployment Report Distortions

pbcastelain wrote:

Unemployment figures have never revealed the full picture as a measurement of our economy, so it is bad enough that the figures are being distorted for political gain.  

The current economic situation is far worse than we realize:  There are few statistics being published on two groups that never drew unemployment when businesses close, and those are the self-employed and the "contract employees" who do not qualify for unemployment and have no access to services in the traditional format.  It would be quite interesting to see the figures for "unemployment" combined with the aforementioned two groups - I believe the numbers would be staggering and set historical records.

+1

If I recall, the B-D model uses 12 month lagging data. But that is an aside, what you say I totally agree with.

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Re: Unemployment Report Distortions

Very good point.  I believe I should change my comment from "staggering" to "mind-boggling" considering the 12-month lagging data you mention!  It is a fearsome situation, so how do we change it?  I am new to the site, so give me some time to absorb it all....

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Re: Unemployment Report Distortions

I'd like to open with a discussion of Friday's Forex moves - and the notion that the $ experienced a major turn here based on the perceived and bogus improvement in employment. Dr Martenson has clarified the inherent distortions well, but it does beg the question that aren't the smart boys in the room just well versed in this black art?

It's a little difficult to understand how this data could possibly set off a major $ rally, as presented by all mainstream media yesterday and today.

Does anybody see legs in this rally - or was this more of the same kind of short covering that has affected prices of AIG and some other issuers lately?

Also perplexing is why gold and gold shares have been among the weakest performers recently. This is totally counterintuitive based on the increasingly obvious machinations of the FED to suppress interest rates and the fiscal and monetary situation slipping out of control, obvious now for anyone - particularly the primary dealers- to see?

After all, they are the smart boys in the room and the ones with the clout to move markets. 

Comments would be appreciated

Davos's picture
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Re: Unemployment Report Distortions

Real numbers can't be conned for long.

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Davos
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Re: Unemployment Report Distortions

Don't see the edit button. What I meant to say is:

Real numbers can't be conned for long, Enron (The Smartest Guys in the Room) were proof of that. A good movie by the way.

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Re: Unemployment Report Distortions

DaveG, yes you're right...big floor traders are not making moves solely based on fake government data.  They like the fact that the masses might make moves based on "fundamental" news like that because they can use it against them, but they don't rely on one piece of data like this for their mega moves.  They're making moves based on strategic risk preferences within the debt collapse we're in. Since March 9 they have led a correction from extreme risk-aversion to risk-acceptance...that's the only basis for the equity market rally while the media blathers about looking for "fundamental" reasons.  Traders know that the next phase of the collapse is coming soon, i.e. the pendulum is going to swing back to risk-aversion, and they're largely the ones that will be doing the initial swinging.  In a massive debt collapse, micro analysis really doesn't matter...all markets are going to move together based on liquidity flows toward and away from risk.  The traders know also that rather than being a domestic trigger, eastern Europe is likely to be the "fundamental" trigger for the next collapse.  So the overall shift back to risk-aversion is going to cause yet another global flight into dollars, but the media will blame eastern Europe for the rise in the dollar...traders like that.  

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Re: Unemployment Report Distortions

That unemployment number being 'better than expected' gave me xx.000 euros profit in 10 minutes with rahter a small amount used, it goes straight to buying gold and other necessities. If the numbers were then expected probably the same.

These numbers, fuzzy as they are, are a great way to add volatility and volume to the stock market. Something traders really like. Until the biggest manipulators like GS are stopped this will go on for some time. A crash of the market is on its way as many people are lured back to the market afraid to miss out on the profits. Ideal time for the big boys to start selling and let the small people bite the dust.

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