Some Really Dismal Numbers

Thoughts from the Frontline (07/06/2010)
"The unemployment numbers this morning were just bad, even though the spin doctors were out in force. We knew the number would be negative because of census workers being laid off, and it was down 125,000. But the 'bright spot' we were told was that private payrolls came in at 83,000 new jobs.

First, last month's dismal private job-creation number was revised down from 41,000 to 33,000. So in two months, total private job creation is 116,000 jobs. We need 125,000 jobs per month just to keep up with population growth.

But it is worse than that. The headline number we look at is from the Establishment Survey. That means they call up existing businesses they know about and ask them how many people are working for them. One of the first things I do when the employment numbers come out is look at the birth/death assessment on the BLS website.

The B/D assessment has nothing to do with people dying, but rather is the BLS' attempt to estimate the number of new businesses that have been created or have "died" within the last month, and they use these numbers to adjust the employment total. They use historical, seasonal numbers to create a model from which they make these estimates. There is nothing conspiratorial about the numbers—they have to make an attempt (estimate), otherwise the employment number would be badly off. But the B/D number can skew the totals a lot more than is typically realized.

Take the last two months. Using the birth/death model, the BLS assumes that 362,000 jobs were created somewhere—3x the number of jobs we read in the headlines. Those extra jobs were added into the total because that is what the model told them to do. And over a complete business and employment cycle, those numbers will average out to be pretty close to right. . .Let's look closer at some of the details.

2010 Net Birth/Death Adjst. (in thousands)

The B/D adjustments say that we added 65,000 construction jobs in the last two months, over half the total number of jobs created. Really? U.S. single-family homes set an all-time low sales number this week. Mortgage applications are way down. Home construction is off. Commercial real estate construction is down. Where are those construction jobs?

In the last two months, 158,000 new jobs have, supposedly, been created in the hospitality and leisure industry. . .In the actual numbers, as surveyed, they estimated only 33,000 new jobs in L&H, so the B/D adjustment accounted for nearly all the positive number."

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