Sunday, July 04, 2004

June Jobs Report: A Reality Check

When does 77,000 actually equal 112,000? Only in the attempt to spin this month's jobs report into something remotely favorable to the Bush Administration. When we tuned in last month, the estimate for total nonfarm payrolls stood at 131.224 million. This month's nonfarm payroll estimate weighed in at 131.301 million, or 77,000 higher. But the announcement was made that 112,000 jobs were created in June, simply because the BLS corrected the last couple of months downward, losing 35,000 jobs in the process. After that adjustment, the new figure is indeed 112,000 higher than the new figure for last month.

But wait, there's more.

The "birth/death model", the BLS's statistical technique for guesstimating the number of jobs they think were created by businesses they don't know exist yet, added 182,000 jobs to this month's (unseasonally adjusted) total. (See earlier post for an explanation of how the BLS imputes the existence of new jobs from new businesses by looking at the number of jobs destroyed by recently deceased businesses.) When you do all the math involved, it turns out that the BLS actually detected a job LOSS of about 68,000 jobs through it's direct sample measurements, and that only by virtue of applying the birth/death statistical fiction could any positive number be discussed at all.

But Even That's Not All.

In that recent blog entry "Most of Those New Jobs Reported Are Imaginary", I calculated that 85% of the new jobs touted as created since March 2003 are the imaginary product of statistical fiction. Updating the charts and numbers with the just-announced June numbers and the April and May downward revisions, it's even more drastic. At this point only 97,000 of the 1,380,000 jobs purported to have been created since March 2003 were actually measured by the BLS sample surveys. The other 93% were "imputed" by the birth/death model. Here's the updated graph:

So What's It Mean?

It means that job growth is far less robust than what's been advertised. That carries with it all kinds of implications for stock markets, interest rates and business decisions. So Caveat Emptor. Here's what it doesn't mean: It doesn't mean the BLS are a bunch of lying scoundrels. The birth/death model is a serious attempt to measure something real, albeit undetectable: the number of jobs created by new enterprises that haven't checked in with the unemployment insurance offices that the BLS samples to collect it's establishment job data. The BLS has been completely straightforward in it's admissions of the shortcomings of the statistical estimation techniques it uses to guess at the undetectable. The BLS has also said that birth/death modeling stinks at detecting changing trends. (I'm liberally paraphrasing.) It also doesn't necessarily mean that all the jobs imagined by the birth/death model don't exist. SOME of them do, since there has to be some new businesses out there that DID create some jobs that haven't reported in to their state bureaucracies yet.

However, when looking at other employment measures, it doesn't look too good for too many of those imputed jobs to be real. We've been stuck at 5.6% unemployment for months now. The number of unemployed is up 84,000 from April to June. There is very little evidence that we have anything more than the same "jobless recovery" we've been experiencing for months. If most of these imputed jobs have not come to pass in reality, then we should see that in ongoing lackluster jobs reports, as the unrealistic projections of the birth/death model continue to be reconciled with reality and month after month of data ends up being revised downward gradually. June's BLS release at least follows this pattern.


There's been an ongoing discussion about my methodology in the comments section of my previous post. Thanks to a handy and brand new FAQ posted at the BLS site, many of the issues in question are now put to rest. Some comments about all of this are posted to the comments page of this post.