US Labor Statistics Misleading

"Why should we care? First, it's always better to know the truth even if self-deception is better.[. . .]

that 1.36 million mistake was mostly caused by faulty guesses in something called the birth/death model, which the government uses in an attempt to capture jobs it thinks, but can't prove, are being created by start- ups." 

http://www.nypost.com/p/news/business/bronx_cheer_for_the_unemployment_6C1GdORHoKjsvdrlffu7SN

A Bronx cheer for the unemployment rate drop

New York Post

Last Updated: 9:11 AM, February 9, 2010

Posted: 12:48 AM, February 9, 2010

Whoopee! There was a big drop in the unemployment rate for January.<p> </p><br> But if you look at the numbers closely the sound you'd hear is more Whoopee Cushion than cheering.<p> </p><br> According to the official Labor Department numbers, the jobless rate in the US dipped impressively from 10.0 percent in December to 9.7 percent in January.<p> </p><br> Since I have kids who need jobs, there is nobody in this country who'd be more happy to leave it just like that -- the recession is over, employment is on the way up.<p> </p><br> But I'll share with you some discoveries that a few inquisitive skeptics and I came across without much effort.<p> </p><br> Most analysts think the jobless rate fell because people are leaving the labor force. And if you aren't looking for a job, you aren't unemployed -- at least that's the way the Labor Department sees it.<p> </p><br> That's only a small part of the story.<p> </p><br> If you have a computer, go to www.BLS.gov and open the press release issued last Friday. Click on Economic Release, Employment Situation.<p> </p><br> At the bottom of the release, you'll see Table A-1. Click on that.<p> </p><br> The top of the A-1 table will be titled "Household Data." In case you are not familiar with the way the Labor Department does things, this is the phone survey from which the government calculates the monthly unemployment rate -- in this case, the heralded 9.7 percent.<p> </p><br> Now scroll down the left and look for the heading "Men, 20 Years and Over." Then four lines under that will be the heading "employed." The second and third column on the right will show you the not-seasonally-adjusted number of men, over 20 years old, who claimed to have had jobs in both months.<p> </p><br> This line shows that when the Labor Department called people's homes for its January survey, it determined through actual calls and estimates that those 70.251 million guys had jobs in December 2009 but only 69.337 million were working last month.<p> </p><br> When you do the math, that means 914,000 fewer men said they had jobs.<p> </p><br> So, shouldn't that have made the unemployment rate rise? Silly you! You probably haven't heard of the magic of seasonal adjustments.<p> </p><br> Follow that line all the way to the right of the page and you'll see that after adjusting for what the computers think ought to have happened in December and January (that's what a seasonal adjustment is, if you don't already know), the government decided that male employment only went down from 70.391 million in December to 70.390 million in January.<p> </p><br> That's a drop of only 1,000, not the 914,000 that it would have been if the figure hadn't been fiddled with. In fact, when you get right down to it, the government confesses that without factoring in the effects of the seasons the unemployment rate would have actually been 10.6 percent in January. Not down from 10 percent to 9.7 percent after seasonal adjustments.<p> </p><br> Don't get me wrong. The Labor Department isn't hiding anything. Since I just quoted from the government's own tables there's obviously nothing sinister about this.<p> </p><br> And seasonal adjustments are valid. Usually.<p> </p><br> But this recession has been so deep and strange that it's very likely these seasonal changes are misleading everyone, especially the press that just doesn't understand.<p> </p><br> Why should we care? First, it's always better to know the truth even if self-deception is better.<p> </p><br> But if truth isn't what you seek, here's another reason: Seasonal adjustments have to come full circle in a year. So if the news is too good to be true now, the government almost certainly will be spewing out an unemployment rate later in the year that will be worse than ac tual circumstances.<p> </p><br> As I warned, the gov ernment reduced by a very large amount the number of jobs in the economy during 2009. But the 1.36 million re duction was well above the 825,000 or so figure everyone was expecting.<p> </p><br> As I explained before, that 1.36 million mistake was mostly caused by faulty guesses in something called the birth/death model, which the government uses in an attempt to capture jobs it thinks, but can't prove, are being created by start- ups.<p> </p><br>john.crudele@nypost.com <p> </p><br>

John Crudele