An in depth analysis of WHY YOU ARE WRONG

Thursday, April 23, 2009

Some Thoughts About Government Unemployment Numbers

People woke yet again to see a very grim unemployment figure which surprised media and analysts on the upside. Anyone following these numbers closely would not have been fooled.

"WASHINGTON -- New jobless claims rose more than expected last week, while the number of workers continuing to filing claims for unemployment benefits topped 6.1 million.

Both figures are fresh evidence layoffs persist amid a weak job market that is not expected to rebound anytime soon.

The Labor Department said Thursday that initial claims for unemployment compensation rose to a seasonally adjusted 640,000, up from a revised 613,000 the previous week. That was slightly above analysts' expectations of 635,000. "

In fact, a strong pattern has developed of rosy numbers grabbing headlines while quietly being revised later with more truthful data.

BLS Job numbers always produce headlines and market impact when they come out while later revisions to the figures slip out later. During normal economic times these revisions are fairly minor. However, the fact that these figures are based upon historic trend estimates of economic activity creates very inaccurate figures during serious recessions.

This is very true now.

August 2008: Initially 84,000, revised to 175,000

September 2008: Initially 159,000, revised to 321,000

October 2008: Initially 240,000, revised to 380,000

November 2008: Initially 533,000, revised to 597,000

December 2008: Initially 524,000, revised to 681,000

January 2009: Initially 598,000, revised to 655,000

February 2009: Initially 651,000, as released today.

The biggest single distortion comes from the BLS's guestimate of the number of firms created and going out of business in a given period which preposterously assume that the ratio of new business starts and business deaths are the same during a serious recession as they were during "normal times".

What's probably going on is that the dismal layoff reports by large companies are far exceeded by even more drastic layoffs and closings among small businesses, most of which are not recieving handouts and favors and are looking foward to massive tax and regulatory burdens.

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