Friday, February 6, 2009

Unemployment: Birth Death Adjustment at it Again

YET AGAIN... the Birth Death Model overstates employment. 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.
The birth death model did subtract 356,000 jobs in January (though LESS THAN the 378,000 reduced in January 2008; January and July are typical revision months). In addition, hidden from the January revision was an additional -180k revision for the April - December 2008 time frame as follows:

Rather than put those revisions in the prior months, I lumped the revisions into January to update the NFP / Birth-Death chart below:

As can be seen above, even with the revisions, the Birth / Death Model still indicates 746,000 net new jobs were added by small businesses in the past 12 months (while more than 3 million jobs were shed), including 12,000 in finance!

In other words, the unemployment figure was ugly, but it likely is even worse.

Source: BLS