Business Employment Dynamics & NFP

On Thursday, we discussed another employment measure, assembled from the quarterly census of state unemployment insurance records.

This measure is discussed in much greater detail this week in the Liscio Report, via Barron’s Alan Abelson:

"UNLESS THE WORLD IMPLODES BEFORE THEN, this Friday the Bureau of Labor Statistics is slated to release May’s employment report. As the big day approaches, Wall Street, as it always does, will indulge in an orgy of guesswork as to what the numbers will be. That this is destined to prove an exercise in futility will not deter for a moment the participants from repeating it a month hence.

Actually, these cockeyed Nostradamuses are more deserving of sympathy than contempt. For apart from their own fallibility — which, since so many are card-carrying economists, is considerable — their prophecies are prey to the even more considerable whims, quirks and fantasies of Uncle Sam’s data assemblers.

Just how much such idiosyncracies distort the actual count of the gainfully employed and, by extension, of those out of work, is hard to pin down to the last decimal. But that it can be huge is evident in another report issued last week by that same Bureau of Labor Statistics (which might better be called the Bureau of Labored Statistics). It’s called Business Employment Dynamics, and we’d been in blissful ignorance of its existence until enlightened by that diligent duo, Philippa Dunne and Doug Henwood, responsible for the Liscio Report.

As Philippa and Doug explain, this series reports detailed gross job gains and losses in the private sector based on nearly complete coverage "of the employment universe provided by the unemployment insurance system." More painstaking than the familiar monthly surveys of employment, the tally is published with a lag of several quarters; the one released earlier this month, for example, was for the third quarter of 2006. What it showed, though, was eye-opening.

Thus, compared with a gain for the quarter of 442,000 jobs reported in the so-called establishment survey, the Business Employment Dynamics, or BED, reckoning was a scant 19,000 additions. In manufacturing, the 9,000 jobs lost according to the payroll figures balloon into a loss of 95,000 jobs in the BED data; the improbable 20,000 additions in construction (think: housing) turns into a loss of 77,000 by BED’s measure; the 507,000 gain in private services shrinks to 108,00. And so it goes. Or, more accurately, so goes the job mirage.

One likely culprit, Philippa and Doug suggest, is that curious concoction known as the "birth/death" model used by the Bureau of Labor Statistics to estimate the gains/losses in jobs from the launching and demise of businesses. Thanks to this voodoo calculation, 156,000 were added in last year’s third quarter and a hefty 388,000 in the opening four months of this year. Nice going, indeed, considering that first-quarter GDP growth probably, when the dust clears, will have fallen below 1%, and April was a punk month.

All of which, among other things, solves a puzzle that seems to have bothered quite a few people: namely, how can the economy be running out of steam when there’s relatively little unemployment? The answer, pure and simple, is that there are significantly fewer folks working and significantly more folks out of a job than the official payroll numbers would have you believe. The next time someone assures you that the employment picture is bright, make sure he smiles when he says that. (emphasis added)

As we have laboriously argued over the past few years, this has not been a great post-recession cycle for private sector job creation. It has been a boom time, however, for creative accounting in government measurements. 

The bottom line: New job creation has been mediocre, and wildly overstated by BLS since changes made to measuring jobs in 2001.



Swarm of Analysts
Barron’s MONDAY, MAY 28, 2007

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What's been said:

Discussions found on the web:
  1. Winston Munn commented on May 26

    Information has been replaced with spin; as wealth has become more concentrated, power has become more concentrated; truth has been replaced by agenda.

    There is only one thing left to do. Get up right now, open your window, stick our your head and yell at the top of your lungs, “I”m mad a hell and I’m not going yo take it anymore!”

  2. Winston Munn commented on May 26

    There appears to be a disconnect with reality somewhere…

    By Christian Weller in the San Francisco Chronicle: “The Federal Reserve also reports that banks are tightening access to loans for small businesses. This can limit the ability of small business owners to grow their business by investing or hiring more, which drags on an already slowing economy.”

    If banks are tightening loans to small businesses, how can the birth/death model be showing small business employment gains?

  3. will rahal commented on May 26

    The payroll growth has been mediocre, but
    if you adjust the initial unemployement claims by the labor force, we are at the level seen in early year 2000’s boom.

  4. Winston Munn commented on May 26

    Quote Will Rahal: “If you adjust the initial unemployement claims by the labor force, we are at the level seen in early year 2000’s boom.”

    Isn’t the labor force number part of the problem of misleading informatin, as well? Shall we simply start announcing labor force ex-anyone-who-can’t-find-a-job-even-a-non-paying-job? That ought to shore up the numbers.

    Or maybe its time for the government to go all out with inflation, employment, housing, initial claims, GNP and the rest, and simply report statistics-ex reality.

    Got any of the red pills on ya?

  5. Vega commented on May 26

    Keep hammering them, Barry et al. The mirage of job growth and low inflation is a lie, we all know it.

    And now that housing really is a horror show, bankers have finally at least realized that NINJA (no income, no job, no assets) loans are toxic, let’s us perhaps consider the the institutional credit market.

    DB has some awesome reasearch out there now explaining that break-even spreads for credits up and down the ratings curve are now quite negative when you adjust them for average (rolling) five-year default rates over the last 50 years. And I think MS has a piece out that shows the weighted avg cost of capital across that same corporate ratings curve. Shocker: the WACC is pretty much flat from AAA through junk.

    Sooner or later a very senior banker is gonna wake up in the middle of the night in a cold sweat and ask himself just why the hell he’s pimping a $750 million loan to Texas Pacific Group so they can pay themselves a huge private equity ‘dividend’ and in turn cash out what little equity they put into whatever deal it is to begin with.

    As the great George Gurley said in one of his rare, lucid moments: “SAYONARA SUSHISAY!”

  6. will rahal commented on May 26

    Winston Munn,
    I am not as cynical, but what I like about looking a the initial unenmployment claims adjusted by the labor force, is that we can conlude that we are near the top of payroll
    growth, and consequenly more weakness(mediocre to bad), will follow.

  7. Charleston Real Estate Blog commented on May 26

    April housing statistics, up, down, what’s going on?

    New home sales, sales up, prices down. Existing home sales, sales down, inventory up, prices ? So what

  8. Winston Munn commented on May 26

    Quote Will Rahal: “I am not as cynical, but what I like about looking a the initial unenmployment claims adjusted by the labor force…”

    I may be missing something, but seems to me that comparing kiwi to kiwi would yield more valid results than a comparison of passion fruit to pomegranates. Wouldn’t the better comparison be of non-adjusted labor force statistics?

  9. will rahal commented on May 26

    Winston, 300,000 applying for unemplyoement
    now, with a Labor Force of 150 Million, is not the same as 300,000 applyng when the Labor Force was 75 million, to make the example clear .

  10. Uncle Bob commented on May 26

    I have a not so simple question, how far down in the BLS organization do political appointees go? We use to have “confidence” in the professionalism of NASA, DOJ, DOE etc until we got “faith based” appointees. What many may call incompetence seems to actually be a deliberate case of infiltration by people intent on destroying our country.

  11. km4 commented on May 26

    > The bottom line: New job creation has been mediocre, and wildly overstated by BLS since changes made to measuring jobs in 2001.

    Yes indeed !

    I’ve been doing solo consulting ( mainly to software startups ) for past 15 yrs and can attest that it’s been tough sledding for past 5.

    If you get downsized, laid off, or fired from a very good paying job BOL trying to find an ‘equivalent one’ that pays the same.

  12. Cherry commented on May 26

    Wow Barry, I basically said the same thing a year ago and people made fun of me and pointed their finger.

    Lets face it, ever since Bush/Neo-con agenda got in there,”bizzare” stuff been going on with government accounting.

    Labor reports are one of the easiest ways to influence people’s “feelings”. How would the market react if the BLS said they were “revising” the EU rate back to Kennedy-Clinton standards and today’s rate was 5.3%(which it REALLY was in April FWIW) and not 4.5% plus higher revised UE rates since 2001? How would the market handle it, the FED bankers would have a fit much less the international investers.

    The fact is, the economy has recovered to a decent level. We aren’t booming, but we aren’t bad off either. If the freaking Corps would lift business spending back to 90’s levels we would be booming, but all the action is overseas this expansion which is funny in a way.

    I also wonder if Bush is that jealous of the Clinton era boom that he just had to mess with the BLS personally. Bush needs to get the message: Clinton wasn’t responsible for that boom, nor is he for this expansion. The Clinton era boom didn’t do anything before 1996 and he had been in office a full term. He just got lucky the tech revolution happened.

    Grow up and fix the mistakes Neo-Cons.

  13. Estragon commented on May 26

    Cherry – I think markets are “smarter” than you give them credit for. They react more to the direction and rate of change relative to expectations than to the specific level of most indicators.

    As for how people “feel” (and by extension, their behaviour based on those feelings), I assert that this is influenced far more by their own experience, and less by statistics. As the old saw goes, it’s a slowdown when you read about rising unemployment; it’s a recession when the guy in the next cubicle gets the axe; it’s a depression when YOUR pink slip arrives.

  14. wunsacon commented on May 26

    Looks like Murdoch didn’t buy the WSJ fast enough!

    Hey, does the BLS employ any Pat Robertson University graduates?

  15. me commented on May 26

    To make matters worse I read that only land lines are called, not cellphones. Does anyone realize how many people no longer have land lines?

    If true, then the data are statistically wrong becuase they are not calling everyone.

    Tech jobs in Atlanta down 19% from 2001. The longer they are in denial the more angry the people become.

  16. jmf commented on May 27

    here the data on illegal immigrants

    working under the radar

    They account for nearly 5 percent of the nation’s civilian labor force, with higher shares in some occupations: 29 percent of roofers, 24 percent of agricultural workers and 25 percent of construction laborers.


  17. Stuart commented on May 27

    none of it matters a damn bit UNTIL the offical figures, sanctioned by the BLS, show this variance and are adjusted. They will only do that kicking and screaming given the HUGE negative political fallout from such a large downward revision. I do not dispute the accuracy of the analysis showing massive overstatement, but just that in our message point, headline driven world these days, until the BLS makes a revision, EVERYBODY else can clealry show whatever they want too, the markets will react as if its irrelevant. ONLY OFFICIAL NUMBERS ARE RELEVANT IN TODAY’S HEADLINE NEWS WORLD.

  18. Winston Munn commented on May 27


    So, only Newspeak from the Ministry of Truth is relevant?

  19. cm commented on May 27

    Winston Munn: Unfortunately, only an organization of the government, or sponsored by the government, has the resources, (presumed) impartiality, and power to conduct a plausible and comprehensive survey. At least nominally people are required by law to respond and give truthful information to them, which is not so with private surveyors.

    Of course, in practice all of the above can be called into question.

  20. cm commented on May 27

    me: And then we have a number of, well, chronically unemployable people, including drifters and the homeless, who probably don’t even have phones or addresses, but who may despite common prejudice not be disinclined to work.

  21. Bobo commented on May 27

    Barry, you are the current unique combination of shrewd, funny and courageous…don’t stop.

  22. Bobo commented on May 27

    Barry, you are the current unique combination of shrewd, funny and courageous…don’t stop.

  23. TDM commented on May 30

    The last time state unemployment insurance was mentioned was the “absurdly large” revision in October.

    “Each year, the Current Employment Statistics (CES) survey data are benchmarked to comprehensive counts of employment for the month of March derived from state unemployment insurance (UI) tax records that nearly all employers are required to file…. The preliminary estimate of the benchmark revision for March 2006 is +810,000 (0.6 percent).”

    The small Q3 2006 number just offsets the huge job gains up to Q1 2006. The Business Employment Dynamics still shows an increase of 1.8M jobs in the year ending in Q3 2006.

    To be consistent with what was said back then we have to note that productivity will be higher than originally reported.

  24. Econbrowser commented on Jun 12

    Reconciling the BED, CES, and birth/death employment data

    There has been some discussion recently about discrepancies between different government estimates of the state of the labor market. Although a legitimate issue has been raised, there has also been a bit of misunderstanding.

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