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Jobs report shows 240,000 losses and more Fuzzy Numbers

Friday, November 7, 2008, 10:44 AM

The Dow Jones is up roughly 225 points on the news that 240,000 people lost their jobs in October.  This perverse sort of reaction defines how Wall Street works.  Wall Street cheers this sort of news, because it implies that another rate cut is on the way.

So the logic boils down to this: The worse the news, the greater the chance that the Fed will shower us with even more cheap money.

In a more perfect monetary system, good news would be rewarded and bad news would be punished but that is just not how Wall Street works.  Quite the opposite.

Of course, nobody ever seems to question this logic, or whether it even makes any sort of sense at all.  To my way of thinking, the problems we are now experiencing stem from having entirely too much cheap money flooding the system for too long, and so I greet every new rate cut and Fed liquidity program with a grimace, knowing that they will merely prolong the agony.

But Wall Street cheers the prospect of cheap money and new credit, because it is those sources of funds that perpetuate their amply-rewarded jobs.

Meanwhile today is "job report Friday," and the news was predictably bad, but not as bad as 'expected'.

U.S. Unemployment Rate Climbs to 14-Year High of 6.5%

Nov. 7 (Bloomberg) -- The U.S. unemployment rate rose to the highest level since 1994 as companies slashed payrolls, setting the stage for the steepest economic decline in decades and a tough start for Barack Obama’s presidency.

The jobless rate rose to 6.5 percent in October from 6.1 percent the previous month, the Labor Department reported today in Washington. Employers fired 240,000 workers after a loss of 284,000 in September, the biggest two-month slide since 2001.

“We’re heading for a deep recession -- banish the word mild from your vocabulary -- it’s big, it’s bad and it’s broad-based,” said Nariman Behravesh, chief economist at IHS Global Insight in Lexington, Massachusetts.

This data fits in with the general theme of this recession being unlike any in recent memory.  In my estimation, the job losses are just getting started, and we can fully count on another 12-18 months of increasing losses.

I reserve the possibility that the total number of losses could be far worse than any prior recessions, for two reasons.  First, this is the largest credit bubble ever to burst, so this means the bottom will be lower than any prior events.  The second reason is that the US is now an 80% service-based economy.  Those jobs are easy come, easy go, so the number of them that "go" could be a real shocker.

And, of course, these numbers would have been a lot worse if the venerable Birth-Death model at the BLS had not added (yes, that's right, added)  an additional 71,000 jobs back onto the sampled losses.

This is beyond preposterous.  Certainly by now, if this were an honest mistake of honest statistical modelers, they would have admitted publicly that their model is clearly broken and in need of repair.

I am certain that we've been in recession since February, and yet, during that time the BLS job modelers have added 1,180,000 jobs to the official landscape.

The Birth-Death model, despite negative GDP, negative spending, negative industrial output, and negative hiring activity, has not recorded a single losing month from February onwards. How is that even remotely possible?  Perhaps they should rename it the Birth-Birth model?

As a sanity check, note that the model has added construction jobs in each and every month, without exception, despite the largest fall-off in residential construction ever on record.  

One wonders what is in this model?  If I were building such a model, I would use inputs such as "spending activity" and "units built/shipped" as my drivers.

I strongly suspect that their "model" is little more than this formula:  (prior amount of jobs) x (some factor.

At any rate, after subtracting out these mythical 71,000 jobs for October, the reported number would have been  -311,000 jobs.

Worst of all, I suspect that all 1,180,000 jobs added by the Birth-Death model are in error and will have to be removed from the official numbers in the future.

This constant fibbing to ourselves about the true state of affairs is harmful because it prevents accurate diagnosis and treatment of what ails us.

It's time to stop, and I call upon somebody at the BLS to please come forward with the truth.

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15 Comments

Ray Hewitt's picture
Ray Hewitt
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Re: Jobs report shows 240,000 losses and more Fuzzy Numbers

My cynical instincts tell me to expect the BLS (short for bullshit) to eliminate the birth/death category some day and merge them into the sectors. Too many analysts are on to the scam.

Chris says:

I reserve the possibility that the total number of losses could be far worse than any prior recessions for two reasons. 

I look at the future and wonder how much worse Bush and Obama can outdo Hoover and Roosevelt. If those two could drive unemployment to 25% at maximum, the incompetent criminals in Washington could double it. I think they will, but it won't show in the phony statistics.

kemosavvy's picture
kemosavvy
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Re: Jobs report shows 240,000 losses and more Fuzzy Numbers

you can critique my logic but isn't a jump in the dow the correct response to a potential rate cut? actual wealth isn't being added into the market but the wealth is being extracted from the dollar by inflationary measures of the fed. therefore, depending on the size of the response actually foretells wall streets degradation of value in the dollar.

 

i believe the old logic is interest rates are inverse to stock prices, but i now believe stock prices are inverse of the value of the dollar.

 

what puzzles me is that the stock market may suffer from inflation but everything else (commodities, homes, services) is suffering from deflation. can we be inflationary while being deflationary?

davefairtex's picture
davefairtex
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the narrative fallacy

"The Dow Jones is up roughly 225 points on the news that 240,000 people lost their jobs in October.  This perverse sort of reaction defines how Wall Street works.  Wall Street cheers this sort of news because it implies that another rate cut is on the way."

I think we're perhaps succumbing to the narrative fallacy here.  While its true there was a bad jobs report, and its true that the market bounced, they are not necessarily tied together.  An alternate explanation for the move up is simply a reaction to two days totaling 10% down, and this is just a typical "market bounce" after such a massive move down.  And not even a very good bounce, mind you - more of a watery, sluggish bounce.  A dead cat bounce, as it were.  Perhaps the move up might have been higher if not for the unpleasant jobs data.  But who can say for sure?  Hence - the narrative fallacy.

I do agree, though, that this country is provided with conveniently bad data in so many areas - CPI, jobs, GDP.  You cannot cure any issue unless you first admit there is a problem, and these fuzzy numbers is our attempt to avoid noticing the problem.  And it defies logic to think that construction jobs were added at a time when housing starts have fallen from an annualized 1.7M in 2006 to .7M in September of 2008.  Here's a link to NAHB housing starts data - it's a very impressive chart.  I especially like the optimistic "forecast" at the end where it shows the uptick in the yet-to-be-reported months of 2009.

http://www.nahb.org/generic.aspx?sectionID=130&genericContentID=45409 

 

Davos's picture
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Re: Jobs report shows 240,000 losses and more Fuzzy Numbers

drb's picture
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Re: Jobs report shows 240,000 losses and more Fuzzy Numbers

[quote=hewitter]My cynical instincts tell me to expect the BLS (short for bullshit) to eliminate the birth/death category some day and merge them into the sectors. Too many analysts are on to the scam.[/quote]

'Scam' implies there was an underlying intent to deceive from the time the  BLS model was first introduced.  While the numbers being reported during the current period of rapid job loss make the numbers unsupportable and lend the appearance of deceit I would be more prone to believe that it is simply another example of the failure of financial models when applied to conditions outside the bounds of the model assumptions (case in point, the models used to provide AAA ratings on CDO's which assumed that house prices will 'always' rise).

I've learned over the years that most people implicitly trust numbers generated by machine, they might punch in a sequence of numbers on a calculator, mis-key an entry, and simply accept the result as 'true without any idea that the displayed result is half or twice what it 'should' have been (ever deal with a cashier at a fast food joint that tries to bill you $8.27 on a $5.62 order? - that's what the machine said, so that's what it is). 

The BLS model might have only have been 'tested' in a period of stable (but modestly growing) employment, it might not have been tested at all, but in any case no one questions the results of models they've been using for years until it blows up in their face.  This can be blamed in part on the failure to teach critical thinking skills in our schools and upon the abysmal level of math skills most of our high school AND college graduates possess.

Davos's picture
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Re: Jobs report shows 240,000 losses and more Fuzzy Numbers

Sign of the coming times. http://marketplace.publicradio.org/www_publicradio/tools/media_player/popup.php?name=marketplace/money/2008/11/07/marketplace_money_20081107_64&starttime=00:33:15.5&endtime=00:37:42.0

My grandfather could have stayed in Russia...

 

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Re: Jobs report shows 240,000 losses and more Fuzzy Numbers

Poor SOB's for listening to them!!!!

Jane Bryant Quinn asks…”what about the financial planners who advise pre- and newly post-retirement clients to hold a substantial portfolio of stocks? Are there flaws in that theory of asset allocation? I put that question on the Web site used by members of the National Association of Personal Financial Advisors. The resounding answer: NO. They've kept the faith in a financial portfolio that's 50 percent to 60 percent invested in stocks for people facing a retirement of 20 to 40 years.” Will investors still believe them when the next wave is over?

http://www.financialsense.com/fsu/editorials/cherniawski/2008/1107.html  

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Re: Jobs report shows 240,000 losses and more Fuzzy Numbers

Also from Wedon's I saw these figures unemployment figures (oct increases):

Manufactureing +6.2%

Construction +10.8%

Farming/Fishing/Forestry +9.5%

Transportation + 7.9%

Final Demand Sector:

Wholesale/Retail Trade +6..3%

Leisure/Hospitality +8.9%

Industrues that HAD been growing are now laying off:

Service +3%

Education/Healthcare +3.9%

Rungs of ladder:

Management +3%

Sales +6.8%

Office amdin +5.7% 

 

Unemployed 27 weeks of longer 2.2 million

Number working part time for economic reasons 6.7 million (a 10.7% increase in Oct.) a 52.2% increase for this year. To shed some light on this, 1990-1991 recession held the all time record of 6,857 million persons working part time for economic reasons...

 

The charts on retail and retail credit were in a parallel nose dive  

Jimbo0972's picture
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Re: Jobs report shows 240,000 losses and more Fuzzy Numbers
Stop complaining about the BLS Model,  It is a known fact that the BLS model will be in error during Economic turning points. (what we are in know.)   Now if you want to complain (and thier is alot to complain about), then do so about things worth complaining about.
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Re: Jobs report shows 240,000 losses and more Fuzzy Numbers

Jimno0972:

I hear you. Maybe it is like arguing over which iceberg the Titanic hit?

Having said that maybe you can help me understand your point better. I see un-adultered unemployment rates of 22% and I read that during the Great Depression unemployment was 25%.

Do you think that this correlation is important so we can determine just how bad things really are? 22% compared to 25% verses 8% compared to 25%.

Also, if GDP was accurate, wouldn't that have warned economists and even the CNBC reporters and the pom-pom press sooner? If so wouldn't that have saved Americans trillions that were lost in the market or borrowed when it wasn't prudent to borrow money for unnecessary things?

To me, and please correct me if you don't agree, I can relate it to my past career as a pilot:  This is like taking out the fire warning lights and letting the engines melt off the wing. Really, if you shut it down before it melted off you could have repaired it instead of replacing it - or worse, letting it do damage to the entire craft, its occupants and anyone you land on top of...

To me, we are the Enron model and this sort of accounting really urks me. Besides, why do we need to pay BLS economists and accountants money to cook our books? Couldn't we pink slip 80% of the BLS and just have solid un-Enron data?

Maybe your point is that things are so bad there wont be a BLS to complain about? If so, yes I get your point. 

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Re: Jobs report shows 240,000 losses and more Fuzzy Numbers

DAVOS

I dont have much time.. but ill try to explain what I can.

 Why we cook our books?  = Their are meny reasons we edit our books,  most came along in the 70's when our Goverment fully realized it couldnt fulfill the promises it made to the baby boomers and maintain a military industrialized complex...

o shoot out of time...

 

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Re: Jobs report shows 240,000 losses and more Fuzzy Numbers

Jimbo0972:

Okay, I think I see where you are or should I say, maybe coming from...

If we do it un-Enron then things like, say Social Security will no longer be collected and then all that money that gets borrowered from SS each month for govt. spending will be "poof" gone and oil will go to the countries that can pay for it, i.e. not us?

No rush, I know what the time thing is like, we are cramming 3 months reading into one weekend so we can short stuff why there is stuff left to short...

I may be nuts and this may be just wrong, but I see a huge emerging oppertunity. I think the market is 2 steps behind, and I think this weeks media silent mea culpa (going from economic crisis to really bad recession) also indicates it is still 2 steps behind. I think the market and the media will catch up to the depression reality really soon.

I read Bernanke's speach on defining what caused the Great Depression is a difficult question (wow boy!?!?!) and almost every sympton he gave for the 1930s depression is out there today ( http://www.federalreserve.gov/boarddocs/speeches/2004/200403022/default.htm ). Hmmmm. Gee Ben, yah don't thing the Fed and Congress had anything to do with them do yah? http://www.financialsense.com/editorials/casey/2008/1107.html

(Warning, article/link might cause cheek muscle soreness from excissive laughing) 

 

Take care... 

 

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gyrogearloose
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Re: Jobs report shows 240,000 losses and more Fuzzy Numbers
[quote=Davos]

I read Bernanke's speach on defining what caused the Great Depression is a difficult question (wow boy!?!?!) and almost every sympton he gave for the 1930s depression is out there today . Hmmmm. Gee Ben, yah don't thing the Fed and Congress had anything to do with them do yah?

[/quote]

 

In There he says

" Faced with the heavy demands of speculators for gold and a widespread loss of confidence in the pound, the Bank of England quickly depleted its gold reserves. Unable to continue supporting the pound at its official value, Great Britain was forced to leave the gold standard, allowing the pound to float freely, its value determined by market forces

With the collapse of the pound, speculators turned their attention to the U.S. dollar......"

Gee Bernanke, why did England have a problem, and then America? Did it have anything to do with the fact that each pound note or dollar was was a promise to swap for a stated amount of gold. 

If they only printed the correct number of note for the amount of gold they had, no problem, they could redeem every note. But they were dishonest, and printed way more notes than they had gold. They broke their promise. Pure and simple they showed they could not be trusted.

I am in no way arguing that there would not have been problems if they had not printed excess notes, but they would be different ones.

But at least they would still have the trust of the people.

He went on to say 

"The speculative attack on the dollar also helped to create a panic in the U.S. banking system. Fearing imminent devaluation of the dollar, many foreign and domestic depositors withdrew their funds from U.S. banks in order to convert them into gold or other assets"

What ? they feared a devaluation of the dollar ? why would they fear that ? Anything to do with broken promises ???

Hamish

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Re: Jobs report shows 240,000 losses and more Fuzzy Numbers

GyroGearLoose:

Good point. I didn't even think that deeply about this. Wow!

Beranke: "What caused the Depression? This question is a difficult one.." + then about 2000 words that I found hard to follow.

Greenspan: The "Fed" succeeded; it stopped the gold loss, but it nearly destroyed the economies of the world in the process. The excess credit which the Fed pumped into the economy spilled over into the stock market -- triggering a fantastic speculative boom. Belatedly, Federal Reserve officials attempted to sop up the excess reserves and finally succeeded in braking the boom. But it was too late: by 1929 the speculative imbalances had become so overwhelming that the attempt precipitated a sharp retrenching and a consequent demoralizing of business confidence. As a result, the American economy collapsed. Great Britain fared even worse, and rather than absorb the full consequences of her previous folly, she abandoned the gold standard completely in 1931, tearing asunder what remained of the fabric of confidence and inducing a world-wide series of bank failures. The world economies plunged into the Great Depression of the 1930's. 

I  just looked at 2 salient points:

 

  1.  Greenspan said it in 3 sentances - not terribly difficult
  2. Both Greenspan and Bernanke are doing together what caused the Great Depression
Makes me really wonder what end Alan was talking about when he said: “A democratic society requires a stable and effectively functioning economy.I trust that we and our successors at the Federal Reserve will be important contributors to that end.”

 

~ Alan Greenspan, 1996

Successors is plural, so if he is talking about the end of freedom I guess we will have at least one other Fed Chairman. Oh joy! 

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Re: Jobs report shows 240,000 losses and more Fuzzy Numbers
Davos wrote:

GyroGearLoose:

Good point. I didn't even think that deeply about this. Wow!

Beranke: "What caused the Depression? This question is a difficult one.." + then about 2000 words that I found hard to follow.

Greenspan: The "Fed" succeeded; it stopped the gold loss, but it nearly destroyed the economies of the world in the process.

  1.  Greenspan said it in 3 sentances - not terribly difficult
  2. Both Greenspan and Bernanke are doing together what caused the Great Depression

In Bernanke's speach he says "To support their view that monetary forces caused the Great Depression, Friedman and Schwartz"

After he states their claims, he said "Milton Friedman and Anna Schwartz deserve enormous credit for bringing the role of monetary factors to the fore in their Monetary History." and I did not see anything he said to suggest they had got it wrong.

Excerts intrimmed

Bernanke wrote:

Friedman and Schwartz emphasized at least four major errors by U.S. monetary policymakers.

1   The Fed's first grave mistake, in their view, was the tightening of monetary policy that began in the spring of 1928.... This tightening of monetary policy in 1928 did not seem particularly justified by the macroeconomic environment: The economy was only just emerging from a recession

2  The second monetary policy action occured occurred in September and October of 1931.  Long-established
central banking practice required that the Fed respond both to the
speculative attack on the dollar and to the domestic banking panics.
However, the Fed decided to ignore the plight of the banking system and
to focus only on stopping the loss of gold reserves to protect the
dollar. To stabilize the dollar, the Fed once again raised interest
rates sharply

3 The third policy action  occurred in 1932. The Depression
was well advanced, and Congress began to place considerable pressure on
the Federal Reserve to ease monetary policy. The Board was quite
reluctant to comply.... Thus monetary policy was not in fact easy at
all, despite the very low level of nominal interest rates. In any
event, Fed officials convinced themselves that the policy ease
advocated by the Congress was not appropriate, and so when the Congress
adjourned in July 1932, the Fed reversed the policy. By the latter part
of the year, the economy had relapsed dramatically.

4 The fourth
and final policy mistake emphasized by Friedman and Schwartz was the
Fed's ongoing neglect of problems in the U.S. banking sector. As I have
already described, the banking sector faced enormous pressure during
the early 1930s. As depositor fears about the health of banks grew,
runs on banks became increasingly common

Since I saw Bernanke make no claim that some other factor was a mistake, I think it is safe to presume he believed everything had been proceeding in a responsible and correct way.

Now if the first mistake was ""tightening monetary policy""   might I assume that the policy had been loose i.e pumping money into the economy.

Well what do you know, in the next sentence ""The economy was only just emerging from a recession'"".

And what do governments usually do in a recession, don't they easy monetary policy and pump money into the economy.?

Then mistake 2, they eased it

Then mistake 3 they tightened it then eased it

 

Looks a bit like speed wobbles, over-correcting to late

So might one conclude that pumping money into the economy to cure a recession is risky in that it can set off 'speed wobbles' ?

So should that not be considered the FIRST mistake ?

There are other similar  issues ( such as the gold one posted preciously ) But time........

Now your Greenspan quote looks like it covers the period covered in mistake 2  but the dates are a bit glitched, not sure why, no link to the source of Greenspan quote

 

Cheers Hamish

 

 

 

 

 

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