Beware the government’s job figures

August 8, 2009

In a phone conversation yesterday, John Williams at Shadow Government Statistics warned me not to read too much good news from the better-than-expected jobs figure.  The government’s seasonal adjustments aren’t, well, adjusting properly.  They’re still keying off “typical” fluctuations in employment.  But of course today’s economic climate is anything but typical.  Yesterday the official unemployment rate ticked down a tenth of a percent to 9.4%, but according to Williams it should have ticked up a tenth of a percent to 9.6%.

There are big seasonal changes in employment that the Bureau of Labor Statistics corrects for in order to reduce the volatility of the unemployment rate.  For instance, each year employment spikes ahead of the holidays as companies add workers, and then drops as those workers are let go.

July usually sees a regular pattern of planned automobile production line shutdowns to accommodate retooling for the new model year, but recent disruptions to the auto industry have changed pattern this year. Without the usual pattern of shutdowns, the government’s computers nonetheless responded by creating the usual offsetting boost in jobs, not only in the auto industry, but in supporting industries as well. The auto industry itself was alone among durable goods manufacturing industries in showing a reported, seasonally-adjusted monthly gain in July, up by 28,000 jobs.

Besides bad seasonal adjustments, Williams has problems with the so-called “birth-death” model, which “adds a fairly consistent upside bias to payroll levels each year, currently averaging 76,000 jobs per month.”  The genesis of the birth-death model was after the early ’80s recession, when employment figures didn’t catch jobs being added by new small businesses.  However, when a company like Taylor Bean & Whitaker stops reporting its stats, say because all employees were fired en masse, BLS assumes the company is still in business.  (For how long, I’m not sure)  The bottom line is that, in recessions, you’re losing more jobs from failing businesses than you’re gaining from emerging ones.  Hence the upward bias of the model during recessions.

But according to Williams the biggest problem with the official unemployment rate—”U-3″ in BLS parlance—is that it excludes both the underemployed and workers who have become “discouraged” and stopped looking for work:

During the Clinton Administration, “discouraged workers” — those who had given up looking for a job because there were no jobs to be had — were redefined so as to be counted only if they had been “discouraged” for less than a year.  This time qualification defined away the long-term discouraged workers.

Add all the underemployed and the disappeared and you have Williams “alternate” measure, which pegs unemployment at 20.6%, not 9.4%.

For more of Williams work, I recommend a subscription to SGS.

And for more on the unemployment rate, check out this helpful post from EconomPic Data.

8 comments

We welcome comments that advance the story through relevant opinion, anecdotes, links and data. If you see a comment that you believe is irrelevant or inappropriate, you can flag it to our editors by using the report abuse links. Views expressed in the comments do not represent those of Reuters. For more information on our comment policy, see http://blogs.reuters.com/fulldisclosure/2010/09/27/toward-a-more-thoughtful-conversation-on-stories/

DON’T BELIEVE THE DOUBLE-SPEAK

Ignoring economic reality is more than simply idiotic.

http://pacificgatepost.blogspot.com/2009  /08/obama-middle-class-income-tax-incre ases.html

…..Keep saving every dime you can for tomorrow.

Thanks for the compelling info. The official figures are certainly garbage, due to neglecting “discouraged” workers. Maybe we can also get Reuters not to drop the phrase, “seasonally adjusted.” (Apparently the government also uses tricks to doctor inflation figures, to keep down the Social Security cost of living adjustments.)

Why don’t you have your own blog series on Reuters? You only turn up here and there.

So what about option armageddon, anyway? That’s what I want to hear about. What are they saying now, we have $700 trillion (yup, 7×10^14) worth of options outstanding with a Gross World Product of $50 trillion? If that played out the wrong way we could all hit the pavement pretty hard!

Posted by Pete Cann | Report as abusive

The unemployment and underemployment rate certainly are heading upward. It’s easy to figure that out, but consider those who have simply decided not to look for typical work after their unemployment benefits ran out. I’m not sure why the government has to cook the books on this, when everyone knows the real truth. Anyone who actually believes that unemployment is headed downward should consider visiting their local neighborhood psychiatrist, especially before obamacare takes place.

Posted by Frank | Report as abusive

Besides the obvious flaws in the methodology of calculating the unemployment rate you mention Rolfe how are independant contractors and sole propriertorships dealt with, if you know?

Does a tractor trailer owner operator who can’t find any loads to carry or has his truck repossessed counted as ‘unemployed’. How about a person who is self employed as a carpenter/contractor etc dealt with when he hasn’t had any work for months?

Posted by sangellone | Report as abusive

BLS is probably looking at the amazingly record high number of new Social Security retirees every month so far this year (862,000 since January). These people could be looking for jobs and could be counted in the Household survey as unemployed but BLS knows most of these folks are 62 (leading edge of the “baby boom” generation)who’ve simply given up and are desperate for some income. The July drop in the unemployment rate should not be a surprise. The surprise would be if the rate ever reaches 10% because the “baby boomers” are going to continue to “give up” for the next 20 years.

Posted by John Booke | Report as abusive

Americans have learned the hard way that Republican tax cuts DO NOT work to create jobs. The labor pool in India and China is way to large. The Republican party is out of power and trying to find a new favorite mantra.

Posted by Thomas | Report as abusive

Re: Thomas- So tax cuts do not stimulate the economy and increase employment? Funny, as I recollect, Rebublican tax cuts pulled us out of the 1983 and 2001 recessions, (Kennedy’s cuts also reversed the 1961 recession). Clinton’s tax increase in ’93 actually extended that downturn. Please don’t try to bullshit us with your partisan, made-up “facts”.

Posted by Not A Serf | Report as abusive

http://www.shadowstats.com/alternate_dat a is correct. Plus, the recent stock market rally, is being funded by the Fed. Those who are saying the worst is over, are lairs. O had a chance to make real change, but he sold out to Goldman. Nothing has changed, and things are just going to get worst. Save your money. An economy based on buying things we don’t need, is doomed to fail.

Posted by Rick | Report as abusive

[...] if the aforementioned distortions are removed, Williams saysthat July unemployment figures would have actually increasedslightly from June. Indeed, Williams [...]

[...] says [Footnote] that unemployment figures for July 2009 rose to 20.6% [...]

[...] says [Footnote] that unemployment figures for July 2009 rose to 20.6% [...]

[...] says [7] that unemployment figures for July 2009 rose to 20.6% [...]

[...] says [7] that unemployment figures for July 2009 rose to 20.6% [...]

[...] says [7] that unemployment figures for July 2009 rose to 20.6% [...]

[...] says [7] that unemployment figures for July 2009 rose to 20.6% [...]

[...] says [7] that unemployment figures for July 2009 rose to 20.6% [...]

[...] says [7] that unemployment figures for July 2009 rose to 20.6% [...]

[...] if the aforementioned distortions are removed, Williams says that July unemployment figures would have actually increased slightly from June. Indeed, Williams [...]

[...] says [7] that unemployment figures for July 2009 rose to 20.6% [...]

[...] says [7] that unemployment figures for July 2009 rose to 20.6% [...]