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The End Does Not Justify The Means: The Truth Behind the Jobless Report

Merrill Lynch has recently posted what they beleive to be the explanation behind the current jobless report numbers:

Deeper job cuts in store for June

The payroll report was a mixed bag with an upside surprise to nonfarm payrolls to-345k plus an 82k upward revision to the prior month but another unpleasant0.5ppt jump in the unemployment rate to a 25-year high of 9.4%. The payrollnumber was significantly above the consensus call of -520k though closer to the BAS ML forecast of -465k. Still, we caution against getting too enthused by the payroll figure given that the birth/death adjustment factor added another implausible 220k jobs in May and the average workweek slipped back to the historic low of 33.1 hours. Moreover, we expect the June payroll report to show a steeper decline since there will be even more job cuts related to the North American auto sector restructuring than there were in May and the unemployment rate will come very close to the double digit mark.


Just to make anyone everyone aware of the current jobless claim reports that came out today.  The government has manipulated the data by adding 220,000 jobs that were artificially created, and arbitrarily held a large number of jobs that were lost from having a significant impact on the data. The government did this by using the “birth/death” loop whole in their estimation process. The rules by which this birth/death model imputes data into the non farm payroll claim can be found at this website . The essence of what this loop whole does is this:
1.   &nbs... Birth: Because of the lag between starting a business and having the new employees show up on the non-farm payroll report, the government has allowed a method by which the people who create the report can guestimate how many jobs were created by the $ amount of the initial start up. Unfortunately, this creates an environment where there is no regulation by which someone can claim a certain amount of jobs were created before they actually are, and no evidence is needed to test this supposition. Accounting gimmickry anyone?
2.   &nbs... Death:  (Here is the best part). The people in charge of reporting these payroll claims also have another method by which they can reduce the reported jobs lost, or if interpreted another way, not report them at all. They are actually able to subtract any job losses from business “deaths” ( businesses either in bankruptcy or have closed their doors all together), from the artificial and unregulated “birth” claims. This means that because the government expects and hopes that more jobs are created from the startup of new companies, than it is fare to subtract the reality of losses from the expectation of future job creations. In layman’s terms they are able to report that a lot more jobs are created if Actual Death losses are less than hypothetical Birth creations (Fake Births – Real Deaths), with no bearing as to what the reality of how many jobs the new companies actually produced. Sounds like whoever created these rules would have a warm and welcome spot in the senatorial subprime committee, move over barney frank you got a few friends.