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VIDEO824,000 Jobs Will Disappear Tomorrow
By
Mike Mish Shedlock
Feb 04, 2010 7:40 am
The Bureau of Labor Statistics admits its model is flawed, but has no plans to change it.
On Friday, expect to see the Bureau of Labor Statistics revise job creation estimates down by a whopping 824,000 jobs. The culprit, as I've been harping on for a couple years, is a birth-death model that's far out of sync with reality.
Bloomberg has some nice interactive charts in the article Birth/Death Model Insights.
Originally the BLS said 4.8 million jobs were lost between April 2008 and March 2009. This is what it looks like now:
Birth-Death Model Falls Out of Bed
The labor department says there are flaws in its model but defends the process and says "no changes to the current modeling technique are scheduled at this time." Please note that the birth-death model has added 990,000 jobs since April. Those jobs aren't reflected in the upcoming 824,000 revision.
Jobs Contract 24 Straight Months
Here's a snip from my post Jobs Contract Two Straight Years:
Bloomberg has some nice interactive charts in the article Birth/Death Model Insights.
Originally the BLS said 4.8 million jobs were lost between April 2008 and March 2009. This is what it looks like now:
Birth-Death Model Falls Out of Bed
The labor department says there are flaws in its model but defends the process and says "no changes to the current modeling technique are scheduled at this time." Please note that the birth-death model has added 990,000 jobs since April. Those jobs aren't reflected in the upcoming 824,000 revision.
Jobs Contract 24 Straight Months
Here's a snip from my post Jobs Contract Two Straight Years:
Birth-Death Model Revisions 2008
Birth-Death Model Revisions 2009
Birth-Death Model Revisions
At this point in the cycle, birth-death numbers should have been massively contracting for months. The BLS is going to keep adding jobs through the entire recession...
Please note that one can't subtract or add birth-death revisions to the reported totals and get a meaningful answer. One set of numbers is seasonally adjusted, the other isn't. In the black box, the BLS combines the two coming out with a total. The birth/death numbers influence the overall totals but the math isn't as simple as it appears and the effect is nowhere near as big as it might logically appear at first glance.
BLS Black Box
For those unfamiliar with the birth-death model, monthly jobs adjustments are made by the BLS based on economic assumptions about the birth and death of businesses (not individuals). Those assumptions are made according to estimates of where the BLS thinks we are in the economic cycle.
The BLS has admitted however, that its model will be wrong at economic turning points. And there's no doubt we're long past an economic turning point.
Here's the pertinent snip from the BLS on Birth-Death Methodology:
- The net birth-death model component figures are unique to each month and exhibit a seasonal pattern that can result in negative adjustments in some months. These models don't attempt to correct for any other potential error sources in the CES estimates such as sampling error or design limitations.
- Note that the net birth/death figures aren't seasonally adjusted, and are applied to not seasonally adjusted monthly employment links to determine the final estimate.
- The most significant potential drawback to this or any model-based approach is that time series modeling assumes a predictable continuation of historical patterns and relationships and therefore is likely to have some difficulty producing reliable estimates at economic turning points or during periods when there are sudden changes in trend.
The BLS is stuck and doesn't know how to fix its model.
Some will point out that the string of job loss months ended November 2009. I dispute that. More revisions are surely coming for April 2009 through December 2009 and beyond.
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