Friday, January 9, 2009

Unemployment Way Worse than 7.2% Due to Birth / Death Adjustment

The Birth Death Model once again overstates employment. In other words, things are a lot worse than the 7.2% rate presented to us. Per The Big Picture:

Since 2003, the B/D adjustment has been part and parcel to BLS' Current Employment Statistics (CES) program, the official measure of US employment. In brief, the Birth Death adjustment imagines (hypothesizes) how many jobs were created by companies too new and/or too small to participate or be found by CES. The model attempts to create what is perceived as a BLS error at the start of any recovery, when many new jobs are created but missed by BLS.

Does anyone think small businesses have really added 53,000 jobs to the financial sector over the past 12 months (and 18,000 last month)? Get ready for a severe reaction next month when it snaps back (the annual correction to the B/D figure is made in January's release - coming in February).

Source: BLS