Job Losses Higher Than Reported - Comstock

From our friends over at Comstock Funds:

The Bureau of Labor Statistics (BLS) recently announced that they will be making downward benchmark revisions to past monthly nonfarm employment data that casts doubt on the validity of the recent figures as well. As we will explain, it is highly likely that substantially more jobs are now being lost than is currently reported.

The BLS makes annual revisions to the previously announced payroll reports to account for job increases or decreases that were not picked up in the initial data. The main reason for the differences in the preliminary and final reports is the difficulty in getting numbers from the many small and medium sized business and accounting for new startups and firms going out of business. To make an educated guess at the data that they are missing, the BLS uses something called the ARIMA time series model (commonly called the birth/death model) to estimate employment changes resulting from business births and deaths that are not accounted for by other methods. The model is based on the actual births and deaths over the five prior years.

As you can imagine, when the prior five years were a period of economic expansion, the application of these numbers to a period of recession can result in a substantial overestimation of job changes, and that is evidently what happened recently. The BLS candidly acknowledges this and states that it is “likely to have some difficulty producing reliable estimates at economic turning points or during periods when there are sudden changes in trend.”

In the current instance the BLS announced that preliminary tabulations indicated they would have to reduce the estimate of total nonfarm employment by about 824,000 for the year ended March 31, 2009. On average, therefore, employment for the period was overstated by about 68,000 per month. Interestingly enough, the birth/death adjustment had added about 717,000 jobs during the same period. So it’s apparent that the benchmark revision will more than wipe out the entire amount added by the model.

What does this mean for the period following March 31, 2009, which will not be revised until next October? For the six months since March 31st the birth/death adjustment has added 815,000 jobs, an average of 135,000 per month. Since small and medium sized firms are suffering from severe credit restrictions, they are much more likely to have reduced employment significantly rather to have added that many jobs. That means current monthly job losses may be running as much as 135,000 higher than is currently being reported. While we won’t know the true number for another year, those being laid off will know, and they will be reducing their spending accordingly. The Fed certainly knows what’s happening and that’s one reason they are promising near-zero interest rates indefinitely.

When we combine the weak job numbers with declining wages, tight credit, record household debt and the impending explosion of home foreclosures, the chances of a sustainable economic recovery looks exceedingly slim. Yet, for the third time in this decade the stock market is off on another binge not based on reality. Such flights into fantasy always end badly.

Source: Comstock

Comments

[User 353732:]

1. It is true that the stock market is decoupled from the wealth creating and job generation capacity of the real economy.
However, the equities market is tightly coupled to force fed liquidity and to a falling dollar. When real wealth is stagnant or compressing and liquidity is escalating at lunatic rates then stock prices must increase to reflect "liquidity bloating" the same way a balloon must expand when inflated or the stomach of a lazy glutton must distend when engorged. This is what is happening to financial stocks.
Another coupling is between the dollar valuation of real asset companies(eg energy) and dollar debasement. As the exchange rate of the dollar versus real assets or globally deployable technologies plummets, the dollar price of companies that own such assets or technologies must rise.

2. Small businesses account for 3 times as many American jobs as big companies. Coddling strategically moribund big companies with free and abundant credit while deliberately starving small businesses of financial oxygen MUST lead to higher unemployment and underemployment.

Oct 16 07:51 AM

[predictorma...:]

These numbers would not be such a big issue if market pundits were not using them as evidence to support the "recovery is underway" chant.

By not having a clear view of what is actually going on, steps are not being taken now that will be important in the future.

For example states are now facing new FY budget shortfalls because of declining tax revenues. They should have planned for the worst (NOT just hang in there, things are getting better) and decisions could have been made, and made earlier.

That is just one example. On the ground people see what is really happening and it seems that folks on the top in business or government so not, and it's because of bad statistics.

Oct 16 08:36 AM

[RATHER FISH:]

"Figures don't lie.but liars figure'

Oct 16 09:11 AM

[notsosmart:]

just double the gov figures & you will be closer to the truth.a lot off the laid offs will never work again. those businesses that survive after 1st quarter of '10 will remain lean for a long time.the go go years of bs jobs is history.unless we find a way to make oil out of granite counters we will continue to decline.pay of your debts & dont borrow.

Oct 16 05:11 PM

[talld:]

There is certainly an economic recovery going on in the mainstream press. Everywhere else there is trouble.

Oct 17 05:17 PM