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


  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?

  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

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

  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.

  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.

  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