Jobs Reports Follow Up

Haven't updated this blog in a while due to heightened work responsibilities and travel, but I wanted to revisit a prior subject because of some discussions that resulted mainly taking place in other blogs.

Quite a few people criticized my earlier postings discussing how most of the jobs thought to be created in the last year and reported in the Bureau of Labor Statistics' establishment survey were imaginary. In a representative criticism that actually is somewhat valid as far as it went, Jason Williscroft said:

"No place do you demonstrate that the BLS numbers actually are wrong, nor do you show that the fundamental assumptions underlying their counting methodology are actually incorrect. The best you seem to be able to do is to cherry-pick data that seem to support your assertion, while dismissing any that don't. These guys perform such counts for a living; I would suggest that, if you are going to attack their results, the onus is on you to demonstrate how they actually are wrong, not how they might be wrong in some alternate universe." (quote found here.)

This of course is a double negative. Proving something is NOT so is virtually impossible. If I asserted that, in a good friend's frequent example, that Dover, Delaware is REALLY intended to be the capitol of the United States, others would have a hard time disproving such, because of the strange scarcity of documents directly asserting that Dover is NOT the US Capitol. All one can do in such a challenge is show indirect evidence that the capitol was really some other city. Such evidence wouldn't make a skilled internet flamethrower pause for even a second, and huge quantities of bandwidth would continue to be consumed debating the proposition.

In this case the BLS is making the assertion, not I. They are claiming that over a million jobs have been created that have not EVER been detected by their actual sample surveys month after month. They make the claim based on a statistical device that has as it's core the assumption that for every job destroyed by a company gone bust or moving out of the country, another like job in the same community and the same industry mysteriously rises from the ashes to take it's place. Blind faith is necessary to believe this, because none of these jobs by definition have actually been detected. To be fair, this was a good assumption in years past when the model's mathematics were worked out. However, there has been no research from BLS or anywhere else that tests the validity of such assumptions during an era where so many jobs are outsourced, downsized or automated out of existence, OR in an era of generally contracting job opportunities.

Just like our Dover Delaware example, the argument itself won't satisfy. One has to go further to try to measure these imaginary jobs in some other way. Williscroft gave it the good old college try with an argument based on his company's health insurance customers. Points given for effort and imagination.

A better way would be to look at what the experts were saying the implications of those rosy job creation reports would be to the economy, and see if those predictions came true. Here's a representative comment of what was expected:

"I think this is something that can be sustained," William G. Cheney, chief economist at MFC Global Investment Management, said of the pace of job creation. The figures showed that the once-halting recovery has given way to a self-sustaining expansion, analysts said, as job growth drives up incomes, which fuels more spending, which begets more hiring, he said. "You create that many jobs and people go out and spend the money and it feeds on itself," Cheney said. Washington Post (248,000 Jobs Added In May -Unemployment Rate Remains Unchanged", 6/5/04)

Yup, that's exactly what would have happened if over a million more people had jobs than was actually the case. So if it did not happen as predicted, that is clear empirical evidence that those jobs weren't really there. And of course, we know what happened since then.

June's rosy headlines gave way to July's gloom. "Job growth disappoints: Economy created just 112,000 jobs in June, less than half of forecasts; unemployment flat at 5.6%."

The day before, international business headlines screamed at US employers: "Outsource or Perish".

That expected retail spending fueled by those jobs also didn't happen: Retail sales suffered a larger than expected fall in June.

All told, there were virtually no economic indicators whatsoever that pointed to those jobs being real. Instead, we were told it was an unexpected "soft spot" in a strengthening economy. Right.

This is not just some gotcha game for political posturing. Whether or not real job creation happens is of vast importance, not only to those who need those jobs but for the general public themselves. Consider this comment assessing the 148 points the Dow piled on the Monday after the Friday jobs report in June. That frenetic stock market was fueled by

"...a continuation of the euphoria we saw on Friday with the employment numbers" CNN/Money

Billions of dollars flooded the stock market that day, convinced the economic recovery was at full tilt thanks to the rosy job numbers. By the close, the Dow Jones Average stood at 10,391. As reality slowly set in during the ensuing months, those investors who were hoodwinked into thinking happy days were here again now look at a Dow 350 points lower (as of 9/24/04). Yet those of us who nailed those job reports as imaginary were denounced as tin foil hat conspiracy theorists, while those left holding the bag with their brokerage losses were spot on the mark. Go figure...

The amazing thing about all of this is that you could see it happening in real time. In the very same press release from the BLS trumpeting 248,000 new jobs in one month, you also found out a lot more. Note the Washington Post headline I linked to above: "248,000 Jobs Added In May -Unemployment Rate Remains Unchanged". This headline unwittingly reflects what is really going on here. Every measure of employment, EXCEPT the labor department's payroll numbers, suggests a continuing jobs recession.

In the June press release from the Bureau of Labor Statistics, it was duly noted that (1) the number of unemployed persons remained about the same, (2) the unemployment rate remained the same, (3) the employment-population ratio remained the same and (4) the civilian labor force participation rate remained the same, YET there were 248,000 new jobs that month. The same type of numbers occur in the prior three month's releases. We're asked to believe, (and apparently most of us did) that all measures of unemployment stayed about the same, while a combined three month total of almost a million jobs were created since February.

What's truly amazing here is how many people fell for it.