Reader Emails on Birth/Death Model and Unemployment Rate

I have gotten many question about revisions to the Reader Emails on Birth/Death Model and Unemployment Rate.

In case you missed it the BLS has admitted that its Birth/Death Model has overestimated jobs by about 800,000. The New York Times talked about this in Jobs Vanish.

The Labor Department said that it planned to revise the job figures by subtracting more than 800,000 jobs that it had wrongly estimated were filled by workers.

The so-called “benchmark revision” that was announced today will not formally be incorporated into the job figures until February, and could be revised. But the figures indicate that last March the government overestimated the total number of jobs by 824,000, or 0.6 percent. Its overestimate of private-sector employment was even greater — 855,000 jobs, or 0.8 percent.

The culprit is probably the much maligned birth-death model, although Victoria Battista, an economist at the Bureau of Labor Statistics, said the bureau was looking into other possible issues, such as changing response rates to the questionnaire sent out by the bureau to employers each month.

That model adds in jobs assumed to have been created by employers who are too new to have been added to the survey, and subtracts jobs from employers assumed to have failed and therefore not responded to the bureau’s survey.

I have been complaining for years that the Birth/Death model was on Mars.

I include in every monthly jobs post a statement similar to this one: "At this point in the cycle birth death numbers should have been massively contracting for months. The BLS is going to keep adding jobs through the entire recession in a complete display of incompetence."

At least they finally understand there is a problem, years after it was obvious to anyone using some semblance of common sense.

Birth Death Model Revisions 2009



click on chart for sharper image

Given those fantasyland projections I have serious doubts that 800,000 take aways is enough.

Short Comings In BLS Birth Death Model

Inquiring minds are reading Recession shows shortcomings in U.S. economic data.

The U.S. government is having a tough time guesstimating how many small businesses failed in this recession, casting doubt on the reliability of vital data on employment and economic growth.

The formula the U.S. Labor Department designed to help it deliver timely, thorough monthly employment reports broke down in the heat of the financial crisis, miscounting the number of jobs by an estimated 824,000 in the year through March.

That model appears to have misjudged how many companies went out of business during the recession, meaning the labor market was even weaker than initially thought when President Barack Obama took office in January. More recent figures may still be underestimating job losses now, but it will be many months before the Labor Department is certain.

One characteristic of this recession is that it has hit small businesses especially hard, driving down demand and choking off vital sources of credit at the same time.

Jan Hatzius, an economist at Goldman Sachs in New York, thinks that is distorting not only the employment data, but also figures for retail sales, durable goods and even the biggest economic indicator of all -- gross domestic product.

Indeed, 43,546 businesses filed for bankruptcy in 2008, the highest tally since 1998, and the pace has picked up this year, according to data from the American Bankruptcy Institute.

In the second quarter of 2009, the most recent data available, 16,014 businesses filed for bankruptcy, up from 14,319 in the previous three-month period and the highest mark in 16 years.

The Labor Department simply can't catch all those failures fast enough to compile its monthly employment reports, which are normally released on the first Friday after the end of the month. So it must make an educated guess.

Each month, the department surveys about 160,000 firms to get a sense of how many jobs were added or cut. It also uses the "birth-death" model to try to estimate out how many companies opened or closed.

Once a year, the department looks at unemployment insurance tax records to get a more accurate picture of how many people were employed, and matches that up with its own data. Each February, it tries to reconcile these differences by releasing a "benchmark revision".

Normally, the discrepancy is modest. This coming February, it is likely to be about 824,000, according to the Labor Department's preliminary estimate last month. That would mean instead of about 7.2 million jobs lost since the start of the recession in December 2007, there were more like 8 million.

"Preliminary research indicated that a big portion of that was a result of a breakdown in the birth-death model," said Chris Manning, the department's benchmark branch chief.

Somehow throughout this entire recession, the BLS model showed that more jobs were being created by new businesses (birth) than those lost by businesses going out of businesses. When you think about all the small 1-2 person businesses in real estate that folded shop I just do not buy the BLS's data.

They are revising it, but I do not think by enough.

Reader Question On The Unemployment Rate

Kevin (and many others have asked) "What exactly do you think is going to happen to all these missed unemployed people? Is the unemployment rate going to spike in January, or does it get added in gradually?"

In terms of the unemployment rate, what happens is nothing. The unemployment rate is measured by the Household Survey not the Establishment Survey. The Birth/Death Revisions are to the Establishment Survey.

So while there will be dramatic revisions to the Establishment Survey in terms of jobs lost in the January report (published on the first Friday in February), it will not affect the unemployment rate.

Given how screwed up the Establishment Survey is (not that I have any love affair with the Household Survey), when the economy does turn it will likely show up in the Household Survey first. This is what happened at the end of the last recession and it will likely happen again.

There has to be a better way than either of these methods.

Manning said his department was still trying to figure out what went awry this time. One possibility is that the model was not sensitive enough to the credit crunch, which choked off borrowing and pushed many companies into bankruptcy.

"We're researching ways to better understand the limitations of the model, in particular when it comes to responding to economic shocks," he said.

Manning said his department was still trying to figure out what went awry this time. One possibility is that the model was not sensitive enough to the credit crunch, which choked off borrowing and pushed many companies into bankruptcy.

"We're researching ways to better understand the limitations of the model, in particular when it comes to responding to economic shocks," he said.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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Hussman Accuses the Fed and Treasury of "Unconstitutional Abuse of Power"

John Hussman is always a good read. A week after it came out, I am catching up on reading reading "Should Come as No Shock to Anyone".

Hussman is about as level-headed as they come, so it was interesting to see him accuse the Fed and Geithner of "Unconstitutional Abuse of Power". Here is the pertinent snip:

There is most probably a second wave of mortgage defaults in the immediate future as a result of Alt-A and Option-ARM resets. Yet our capacity to deal with these losses has already been strained by the first round that largely ended in March. The Federal Reserve has taken a massive amount of mortgage-backed securities onto a balance sheet that used to be restricted to Treasury securities. The purchase of these securities is reflected by a surge in cash reserves held by banks. Not only are the banks not lending these funds, they are contracting their loan portfolios rapidly. Ultimately, in order to unwind the Fed's position in these securities, it will have to sell them back to the public and absorb those excess reserves, so to some extent, the banking system can count on losing the deposits created by the Fed's actions, and can't make long-term loans with these funds anyway.

Increasingly, the Fed has decided to forgo the idea of repurchase agreements (which require the seller to repurchase the security at a later date), and is instead making outright purchases of the debt of government sponsored enterprises (GSEs such as Fannie Mae and Freddie Mac). Again, the Fed used to purchase only Treasuries outright, but it is purchasing agency securities with the excuse that these securities are implicitly backed by the U.S. government.

This strikes me as a huge mistake, because it effectively impairs the Fed's ability to get rid of the securities at the price it paid for them, should Congress change its approach toward the GSEs. It simultaneously complicates Congress' ability to address the problem because Bernanke has tied the integrity of our monetary base to these assets. The policy of the Fed and Treasury amounts to little more than obligating the public to defend the bondholders of mismanaged financial companies, and to absorb losses that should have been borne by irresponsible lenders. From my perspective, this is nothing short of an unconstitutional abuse of power, as the actions of the Fed (not to mention some of Geithner's actions at the Treasury) ultimately have the effect of diverting public funds to reimburse private losses, even though spending is the specifically enumerated power of the Congress alone.

Needless to say, I emphatically support recent Congressional proposals to vastly rein in the power (both statutory and newly usurped) of the Federal Reserve. Starting with the Bear Stearns deal, the Fed under Ben Bernanke has made a sharp and distinct departure from its historical role, in violation of its charter. As I noted when the bondholders of Bear Stearns were rescued, “The troubling aspect of the Fed's action was not that it lent to a non-bank entity. That ability is clearly authorized by Section 13(3) of the Federal Reserve Act. The problem is that it made its “loans” as “non-recourse” funding – meaning that it would not stand to be repaid if the collateral itself was to fail.” This is still what the Fed seems determined to accomplish.

In my view, deeper loan losses are ahead, and if we deal with the next round the same way that we dealt with the last, we will ultimately succeed in debasing the U.S. dollar. There's little inflationary pressure at present, and chances are that fresh credit concerns will create enough demand for government liabilities to forestall inflationary pressures for several years more. But we cannot reimburse the losses of irresponsible lenders with trillions freshly issued government liabilities without those liabilities ultimately eroding in value. The probable real, after inflation return on stocks and bonds over the coming decade is likely to be very unsatisfactory.

I certainly agree and that is why we need the Fed audited in Ron Paul fashion, not some watered down proposal that makes allowances for and covers up the Fed's unconstitutional abuse of power.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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The Global Warming Religion - A Modern Day Crusade: Do You select The Cause or Does the Cause Select You?

I received a lot of emails in response to Beware The Ice Age Cometh: Hackers Prove Global Warming Is A Scam

Many were from religious zealots of global warming theory, and as you might surmise they were not printable.

A few common sense comments came my way suggesting that the hackers or insiders (I believe the latter) did not prove global warming was a scam, only that that there is proof scammers are involved in global warming.

I have to admit that is true. Apologies offered. That admission aside, even more damning data has surfaced in regards to data manipulation.

The site Watts Up With That? has this interview with Dr. Tim Ball



It seems Dr. Tim Ball was aware of the data manipulation but could not prove it. Here is a partial transcript but I assure you the video is worth listening to entirely.

"[The Emails] confirm suspicions that I have had in 30 years of working in climate science that I saw the hijacking of climate science particularly by computer modelers and then by a small group of people associated with the intergovernmental panel on climate change. The difficulty was that even though I sensed there was these thing going on, proving it is extremely difficult. But now with the exposure of these public files it is not only a smoking gun, it's a battery of machine guns. ... On A global scale it's frightening. This group of people not only controlled the Hadley Center which controls the global data on temperatures, so that the global temperature record is in their hands, they also control the IPCC. ... The IPCC is the basis in all governments for the Kyoto Protocol, the Copenhagen Accord, and so on. ..... The problem they had is they kept saying the 20th century and the latter part of it is the warmest ever. And of course skeptics like myself [and several other names] were saying it was warmer 1000 years ago when the Vikings were in Iceland and Greenland and that's why they decided they had to get rid of the Medieval Warm Period and they achieved that with the hockey stick. In other words they completely rewrote the history."

It Was Warmer 1000 Years Ago Than Now

There you have it. Reputable scientists think it was warmer 1000 years ago than it is today in spite of all the greenhouse gasses emitted. That does not disprove global warming now, but it sure makes mince meat of the theory that greenhouse gasses are to blame.

Al Gore on SNL skit: What Up With That?

Al Gore was on Saturday Night Live in a skit What Up With That?

Irony abounds. I wonder what Gore was thinking during all this?



The Harry_Read_Me File

Inquiring minds looking for more damning evidence of data manipulation and sheer incompetence can find it in the The Harry_Read_Me File

The hacked e-mails were damning, but the problems they had handling their own data at CRU are a dagger to the heart of the global warming “theory.” There is a large file of comments by a programmer at CRU called HARRY_READ_ME documenting that their data processing and modeling functions were completely out of control.

They fudged so much that NOTHING that came out of CRU can have ANY believability. If the word can be gotten out on this and understood it is the end of the global warming myth. This much bigger than the e-mails. For techie takes on this see:

http://www.tickerforum.org/cgi-ticker/akcs-www?post=118625&page=13

CLIMATEGATE: My analysis of the CRU files, starting with "documents/HARRY_READ_ME.txt"

To base a re-making of the global economy (i.e. cap-and-trade)on disastrously and hopelessly messed up data like this would be insanity.

Do People Select Causes or Do Causes Select People?

Tonight I am in a philosophical mood asking "Do People Select Causes or Do Causes Select People?"

I am sure people like to think they are masters of their own causes and perhaps that is true about trivial things but sadly I think when things are really important causes select people, and government is usually at that heart of it with massive propaganda efforts.

Consider the Crusades, World War I, the creation of the Fed in 1913 and support of it thereafter. Were any of those voluntary causes of the masses?

What about the Vietnam War? That one should be easy.

President Lyndon B. Johnson, via the fraudulent Gulf of Tonkin Incident, manipulated the US into the Vietnam War. Did the average US citizen select Vietnam and the "Domino Theory" as a cause or did the cause (accompanied by lies and propaganda) select the average US citizen?

"The Domino Theory" was a religion. On trumped up charges, and a second Tonkin incident that did not even happen, the US entered a disastrous war.

My 7th grade teacher at St. Patrick's grade school in Danville, Illinois was Harry Don Wirth. He was in the reserves and called up in 1966.

I remember like yesterday what he said right before he left "I do not think we should have entered this war but we can't leave now". Did he select the cause or did the cause select him?

"We can't leave now" became a religion in and of itself. That government message was trumped into everyone's head. How many came to believe "We can't leave now"? How many died because "We can't leave now"?

By the way we all loved Harry Don Wirth. He was one of the best teachers I ever had. If someone knows how to get in touch with him, I would like to do so. I believe he was sent to Saigon to work on intelligence, something no one would be able to disclose today.

President Bush invoked his own religious beliefs on trumped up charges of "weapons of mass destruction". All it takes is one madman in the right place to start a crusade.

Of course the military machine promoted the war and after enough propaganda was spewed out by war mongers, the cause eventually selected enough weak souls who would not challenge Bush. The Democrats sheepishly went along for fear of being labeled "soft on defense".

Some might argue that WWII selected us we did not select it. Yet, WWII had its roots in the disastrous US entry into WWI by a president who vowed to keep us out. An unfair settlement of the war led to the rise of Hitler.

Al Gore's Crusade

Al Gore and those at the Climatic Research Unit (CRU) have launched another modern day crusade. The message is powerful: "We need to save the earth from global warming".

Now who does not want to support that noble cause?

Proponents like Bill Maher latched on and helped spread the word. People want to believe in something and want to do their part. The message worked. If the propaganda is powerful enough, the cause eventually selects enough people until critical mass is reached.

A Rational Thought Process

Let's go through a rational thought process step by step.

Q. Is there global warming?
A. Although we can say ice caps are melting, we cannot say that greenhouse gasses are to blame. After all, it was warmer 1000 years ago than today.

Q. Is it possible there is global cooling?
A. Yes that is actually possible because mapping the last 100 years in a period of thousands or millions of years might be meaningless. Whatever warming there is (if indeed there is any), might be a temporary blip in the grand scheme of nature.

Q. What if there is global warming and what if it is caused by greenhouse gasses.
A. What if there is global cooling?

OK let's assume for a moment there is global warming and it is caused by greenhouse gasses. When does it matter? Now? 500 years from now? 1000 years from now? Can we realistically do anything to stop it?

OK Let's assume we have some time to act but not a lot of time to act. Is Cap-And-Trade going to work? Let's answer that question with a question: When has Congress ever done anything that made matters better?

Remember, these are the guys that came up with Fannie Mae, Freddie Mac, and 300 some odd affordable housing programs that all failed. These are the guys that gave Paulson at the Treasury a blank check to solve the banking crisis and to stimulate lending.

On a cynical basis alone the odds are strong that Cap-And-Trade will increase global warming, not decrease it. On a scientific basis the cynics are right. Please consider Cap-And-Trade "Three-Card Monte" Dead For 2009.

The Science study argues [the Cap-and-trade program] is a false economy, because it doesn't consider changes in land use. If mature forests are cleared to make room for biofuel-growing farms, then the carbon that would otherwise accumulate in those forests ought to be counted on ethanol's balance sheet as well.

Cap-and-trade programs exacerbate the problem because developed countries (where emissions are putatively capped) get credit for reductions from ethanol—despite the fact that their biofuels are generally grown in developing countries (where emissions aren't capped). So if Malaysians burn down a rain forest to grow palm oil that ends up in German biodiesel, Malaysia doesn't count the land-use emissions and Germany doesn't count the tail-pipe emissions.

By way of a solution, Mr. Searchinger and his coauthors modestly suggest doing away with the regulatory three-card monte and counting net ethanol emissions from where they are actually emitted. But this is political heresy on Rep. Henry Waxman's Energy and Commerce Committee, which passed its own cap-and-tax program in July with the votes of farm-state Democrats, because the bill all but banned the Environmental Protection Agency from studying land-use changes. So much for letting "the science" guide public policy.

Does any of that matter to the modern day crusaders? Of course not. Propaganda trumps science and causes select people. Once selected it is extremely difficult for those selected to give up the crusade. Instead they become missionaries for the cause.

Thus "We need to save the earth from global warming" whether it is warming or not, whether it is caused by greenhouse gasses (if indeed it is warming), and whether or not the plans to do so make any sense (which they don't).

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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