Digging Still Deeper In Friday’s Jobs Report; What’s the Real Unemployment Rate?
by ilene - May 9th, 2011 2:37 pm
Courtesy of Mish
Every month the government posts the unemployment rate yet few know where the unemployment rate comes from, how it is determined, and the relationship between the unemployment rate and the monthly reported jobs total.
For a quick recap, the unemployment rate comes from a "Household Survey" while the reported headline jobs total comes from the "Establishment Survey". The former is a monthly phone survey, the latter is a sample of actual business employment.
The reason for the "Household Survey" is that it will pick up new business formation, especially small businesses that might not be on the radar of the "Establishment Survey" sample. Even if the "Establishment Survey" sample size was 100%, unless duplicate names were weeded out, it would double-count those holding multiple jobs.
The "Household Survey" attempts to determine five key items.
- Do you have a job?
- Is so was it full or part-time?
- If not, do you want a job?
- If you do not have a job and want a job, did you look for a job in the last 4 weeks?
- Are you in school, on leave, etc.
The BLS does not ask the questions like that, instead the BLS attempts to determine those answers by a detailed list of questions.
For a discussion of exactly what questions the BLS asks to determine the unemployment rate, please see Reader Question Regarding "Dropping Out of the Workforce"; Implications of the Falling Participation Rate
Definition of Unemployed
Logically, one might think one would be unemployed if they want a job and do not have a job.
However, the official definition of unemployed is you do not have a job, you want a job, and crucially, you have looked for a job in the last 4 weeks.
Every month the government reports "alternative" numbers but even though many of the alternate numbers are a more accurate representation of the unemployment rate, the media focuses on the headline number, ignoring millions who have "dropped out of the labor force" simply because they stopped looking for work.
Millions more are in "forced retirement", which I define as someone over 60 whose unemployment benefits ran out so they retired to collect Social Security even though they really want a job.
244,000 Jobs Added Last Month, So Why Did the Unemployment Rise?
Last month many were surprised to see the jobs report claim 244,000 jobs were added yet…
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Employment Data ABCs
by ilene - February 9th, 2010 4:56 pm
Employment Data ABCs
Courtesy of John Lounsbury at Piedmonthudson’s Weblog
Comments on employment data, especially over the past few days, indicate that many are confused about what the data means, how reliable/unreliable it is, and whether or not it is politically motivated. I have written past articles in which many details of how the DOL (U.S. Dept. of Labor) numbers should and should not be used. One of these (here) was a very detailed examination of various aspects of DOL processes. In this article, I want provide a summary update of the earlier work and add some new details.
Political Manipulation
I will address the third concern first. I can find no evidence that there is any political influence whatsoever in the collection and analysis of the employment data. The processes are well defined and stable over long periods of time. In fact, this very stability can produce errors in analysis models that need to be corrected when the historical form of the models starts to deviate from new economic reality.
The Birth/Death Adjustment
The most notable example of model drift is the birth/death adjustment, which has recently overstated the estimate of jobs created by new business formation before the new companies actually show up in the DOL’s Establishment Survey. These estimates are adjusted for 12 month data intervals almost a year after the fact, when new business formation can be more accurately accounted for from state tax and business records.
The ex post facto corrections made necessary by this “wandering model” were applied this month to data for April 2008 through March 2009. A total of 930,000 non-farm payroll job losses were added to those twelve months. Interim adjustment corrections were also made this month for April through December 2009. This will presumably reduce the corrections needed in February 2011 for the period April 2009 through March 2010.
The Establishment Survey
This is one of two monthly surveys conducted by the DOL. It covers approximately 140,000 businesses and government agencies (~410,000 work locations). The output of this survey consists of employment analysis of various segments of the economy, such as retail, manufacturing, construction, mining, transportation, education and health services, government, etc. The average weekly hours worked is also determined by this survey. It is the data used to produce the non-farms payroll report.
In spite of the fact that the non-farms…
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Rosenberg: U.S. GDP is overstated
by ilene - November 15th, 2009 7:19 pm
Rosenberg: U.S. GDP is overstated
Courtesy of Edward Harrison at Credit Writedowns
This morning, David Rosenberg of Gluskin Sheff had another wonderful piece. I am only going to take on one part of it here. I have linked to the full article below so that you can read his analysis in it’s entirety (registration free but required).
The part I want to focus in on has to do with GDP revisions. Basically, the GDP numbers the U.S. government releases are always revised when more complete data come in. Often the data come in years later via tax returns and other slower-to-report channels, so we can get huge disparities in what was reported at the time and what ends up being the final data series. Rosenberg thinks Q3 is going to see major, major downward revisions because of small businesses.
He says the following (highlighting added):
We noticed an interesting piece of research on U.S. GDP from Goldman Sachs’ Economics team that’s worth highlighting. The team questions whether the official government GDP statistics capture how poorly small businesses (ie, sole proprietorships) are doing. The weakness in small business sentiment is seemingly at odds with the recent 3.5% Q3 GDP reading but may explain why the unemployment rate has continued to steadily increase. Part of the reason for small business weakness is that most don’t have the same access to credit as larger firms and larger firms’ output tends to be better captured in the GDP data. While sole proprietorships tend to be small they collectively account for a nontrivial 17% of the U.S. economy.
The Goldman team uses a couple of different statistical approaches to test their thesis. They use timely data from the National Federation of Independent Business (NFIB) confidence survey, which shows that despite a recent improvement, confidence remains exceptionally weak (in fact two standard deviations below long-run trends). The first model suggests that the NFIB survey is consistent with overall GDP growth of 2.5% to 3.0% — not the 3.5% reported. As well, they find that current NFIB readings are more in line with below-50 readings on the ISM manufacturing index versus the actual reading of 55.7.
The second approach has to do with revisions to the GDP data and their relationship to the NFIB. U.S. GDP goes through many revisions as more, and
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Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...
Ilene is editor and affiliate program
coordinator for PSW.