For seven consecutive
months the Bureau of Labor Statistics (BLS) has revised downward, prior job
The New York Times mentioned this on March 6 in Will Job Numbers
Keep Being Revised Down?
Robert Barbera, the
chief economist of ITG, points out a more disturbing trend: The Labor
Department keeps concluding that its initial estimates were too optimistic.
Here are the total job losses reported for recent months, as originally
reported and as shown in the latest revisions.
August 2008: Initially 84,000, revised to 175,000
September 2008: Initially 159,000, revised to 321,000
October 2008: Initially 240,000, revised to 380,000
November 2008: Initially 533,000, revised to 597,000
December 2008: Initially 524,000, revised to 681,000
January 2009: Initially 598,000, revised to 655,000
February 2009: Initially 651,000, as released today.
On average, from August through January, the first estimate was too
optimistic by 112,000 jobs.
March Jobs Data
Inquiring minds are now investigating the BLS March
Employment Report for additional revisions.
Sure enough there were more revisions. However, instead of revising the
February data, the BLS revised the January data a second time as follows.
The change in total nonfarm employment for
January was revised from -655,000 to -741,000, while the change for February
A tip of the hat to Gonzalo who sent me the Times link. I am going to
start tracking these revisions going forward.
For more details on March jobs, please see Jobs Contract 15th
Straight Month; Unemployment Rate Soars to 8.5%.
Birth Death Madness
Naked Capitalism has a series of four interesting charts in Guest Post:
Non-Farm Payrolls Report: Revisio ad Absurdum Here is the one that
most caught my eye.
There is simply no way there is net new business
creation or a pattern this consistent in face of the biggest recession since
the great depression.
Limitations of the residual net birth/death model
The BLS explains the flaw in its own methodology quite nicely. Please
consider Technical Information: Estimation Methods
for Business Births and Deaths.
Limitations of the
residual net birth/death model
The current modeling technique consistently reduces error in the estimate of
nonfarm payroll employment, as compared to making no adjustment, however it
has limitations. The primary limitation stems from the fact that the model
is, of necessity, based on historical data. If at
some future time, there is a substantial departure from historical patterns
of employment changes associated with the residual of net business births and
deaths, the model's contribution to error reduction could erode.
Because there is no current monthly information available on business births,
and because only incomplete sample data is available on business deaths,
estimation of this component will always be potentially more problematic than
estimation of change from continuing businesses.
Birth Death Model
Horribly Wrong At Turns
In short, the BLS model is horribly wrong at economic turns. We have been in
recession for a year and a half, and the BLS is clearly using a historical
model from a non-recessionary period as its guide.
Frequently Asked Questions
Let's wrap up with CES Birth/Death Model Frequently Asked
birth/death factors seasonally adjusted?
A: No, they are calculated using population data that is not seasonally
adjusted and the factors are applied to the sample-based not seasonally
adjusted estimates. Months with generally strong seasonal increases such as
April, May and June generally have a relatively large positive factor. Conversely,
months with overall strong seasonal decreases, such as January, generally
have a relatively large negative factor.
Q: Can I subtract the birth/death adjustment
from the seasonally adjusted over-the-month change to determine what it is
adding to employment?
A: No. Birth/death factors are a component of the not seasonally adjusted
estimate and therefore are not directly comparable to the seasonally adjusted
monthly changes. Instead, the birth/death factor should be assessed in the
context of its effect on the not seasonally adjusted estimate.
Q: Can BLS provide an estimate of the
contribution of the birth/death adjustment to the seasonally adjusted monthly
A: BLS does not calculate an estimate of the seasonally adjusted contribution
of the birth/death model. The sample, the imputation of business births using
deaths, and the net birth/death model are all necessary components for
obtaining an accurate total employment estimate. The components are not
seasonally adjusted separately because they do not have any particular
economic meaning in and of themselves.
Please read those answers
carefully. Many make the mistake of subtracting the birth death revisions
from the reported job numbers. It simply does not work that way.
Of interest to me is the answer to the third question. The BLS maintains that
the Birth Death revisions make the job reports more accurate than without
them. Yet they cannot (or simply will not) tell us exactly how the Birth
Death revisions affect the reported monthly job numbers!
It's time to remove
the "L" from "BLS".
Mish's Global Economic
Thoughts on the great inflation/deflation/stagflation
debate as well as discussions on gold, silver, currencies, interest rates,
and policy decisions that affect the global markets.