Thursday, July 2, 2009

Birth / Death Model Has Added 800,000 Jobs

Per The Big Picture (bold mine):
Birth Death Adjustment: A major modification to the NFP measure is the Birth Death adjustment. Changes to the BD were proposed in 2001, and implemented a few years later. This attempts to capture early improvements in employment at the start of a recovery was the goal. The trade off is it wildly overstates strength at the end of a cycle. For example, in 2007, approximately 75% of reported new jobs were due to this adjusatment. In 2008, the BD adjustment inexplicably showed lots of job creation in construction and finance.
How wildly? Well according to the Birth / Death model, small businesses have added 800,000 jobs over the past 12 months... right.



Source: BLS

6 comments:

  1. My understanding is this was only supposed to give overly rosy data at the turning point...we are long past the turning point into recession, why is this model still so faulty?

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  2. My guesses (need to do some more research, but let me know if you find anything).

    1) the decline in jobs has been extraordinary (doesn't have a mechanism built to take that into account)
    2) it is only adjusts once per year

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  3. It looks like Mish already dug into the detail:

    http://tinyurl.com/create.php

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  4. The B/D model is a scam for EXACTLY the reason you write: "wildly overstates strength at the end of a cycle" Mauldin has written (in agreement) about this in some detail as well.

    Thx for illuminating your readers.

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  5. At what point does an error in the algorithm turn into outright fraud? This is getting out of hand and prevents the public from having a better underdtanding of how poor the jobs picture actually is.

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  6. The Center for Labour Market Studies at Northeastern University estimates that the real unemployment now stands at 18.2%, which is actually higher than the posted rate at the end of the 1930s.

    David Rosenberg writes in his latest piece, Wage Deflation in Our Midst

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