John Williams (Shadow Government Statistics) raises an interesting issue I had not considered: He contends that the Household Survey is more reliable than the Establishment Survey, and I wonder if he isn’t on to something.

Some years ago, I would have argued against it. The more stay-at-home, self-described independent contractors you survey, the more inaccurate your results are going to be. I do not know a single person who lost thier job over the past 3 years who, when asked, did not describe themselves in that manner. It is a matter of pride.

But Williams argues the Household survey sampling is now fairly well established and, significantly, the unadjusted raw data are not revised.

Consider this: In the pre-Bush years, the Establishment Survey (CES) actually measured employment via real paychecks that were actual wages. The B/D adjustment was tiny. But since 2003, the CES is no longer a pure measure; rather, it is only part measurement, and part conjecture, working off of new state incorporation filings.

The Birth/Death Model is now the tail that wags the dog.

Here’s Williams via Abelson:

“John Williams dismisses the consensus outlook and hype from Wall Street and Washington about improving economic conditions as “irrationally optimistic.” And he feels that “with the constraints on broad systemic liquidity still tightening, unhappy surprises are likely in that area as well.”

It seems like forever that we’ve been delivering a monthly rant occasioned by the release of the data of the so-called birth/death model, launched during the Bush administration and extended by the current one, that is supposed to capture the employment additions of new firms and the subtractions of those that go belly up. As it happens, the model is a bust during recessions (as a modest example, it created 34,000 mythical jobs last month).

Comes now the preliminary revision of the March 2009 benchmark, and it turns out that, in fact, courtesy of the birth/death model, that month’s payrolls were overstated by a mere 824,000. As Philippa Dunne and Doug Henwood, proprietors of the Liscio Report note, since job losses in the first quarter of this year were already reported at 2.1 million, “adding the better part of a million to that suggests a truly savage bloodletting in early 2009.”

They also point out that September was the 21st month in a row of shrinking employment, the longest losing streak since the monthly numbers started being published back in 1939. It’s also the worst decline — even without the benchmark revision — since the post-World War II demobilization. The sorry consequence of the severe damage wrought by the recession, combined with the weakness of the 2002-07 expansion, is that private employment is now 2.6% below where it was at its December 2000 peak.

And (you can almost hear them sigh) as Philippa and Doug observe, “We’ve never seen anything remotely like that kind of long-term carnage” in poring over 70 years’ worth of monthly stats.

Yeah, yeah, we know, employment is a lagging indicator. Not this time, buddy.”

The problem with “lagging indicators” is every idiot in the world seems to use that as an excuse when making their early, incorrect call that the cycle has turned. Just because something is lagging — and is still poor — doesn’t mean the economic cycle has turned yet.

As Rosie likes to point out, this wasn’t your run of the mill manufacturing recession; it was a full blown credit collapse/housing bust/bank failure cycle. Comparisons to earlier manufacturing recessions will yield parallels that are utterly inappropriate . . .

>

Source:
Downright Scary
ALAN ABELSON
Barron’s October 5, 2009

http://online.barrons.com/article/SB125452481422260689.html

Category: Data Analysis, Employment

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

22 Responses to “More Birth Death Follies”

  1. Scott F says:

    Given the Bushies dislike of reality, this is hardly a surprise.

  2. this is another good example of Abelson’s value (yes, read: High)

    but for him, and a few of the Cartoonists, Barron’s would have been OOB 15 years ago..
    ~~

    Scott F,

    for Funny, right? Yes? Team 44 had a crack team on it, and now BLS has changed methodologies? No?
    from the post..
    “..launched during the Bush administration and extended by the current one..” RIF! ~ I guess not..
    http://www.rif.org/

  3. austincompany says:

    The government and politicians manipulating the data for their own benefit – WOW, what a shocker. I would, however, expect to continue to see dismal results on the employment and economic front until someone wakes up to the fact that its business that creates jobs in this country, not government.

  4. scepticus says:

    births and deaths is a funny way of referring to employment statistics. Must come from the idea of creative destruction or something.

    you gotta love a system based on an oxymoron like that. All this destruction must be setting us up for the mother of all creative recoveries one day. I guess for the moment we de-construct the situation as an uncreative recovery, bolstered by some very creative statistics work.

  5. jeg3 says:

    You can play with Stats all you want, but you can’t hide reality,
    Homelessness in Neoclassic economic terms.
    http://en.wikipedia.org/wiki/Neoclassical_economics

    Homelessness is where People Act independently on the basis of full and relevant information, and make Rational Preferences for home deficiency in order for Individuals to Maximize Utility.

    http://www.nytimes.com/2009/09/06/education/06homeless.html
    and soon to be home deficient,
    http://www.businessweek.com/ap/financialnews/D9B4EVKO0.htm

    May have to stock up on cardboard boxes, plastic sheeting and duct tape.

  6. Winston Munn says:

    More job cuts are on the way as states scramble to cover shortfalls. And it is the lowest paid on the lowest rung of the health-care ladder that will be forced to sacrifice – and those in society who are least able to afford care will be asked to make do with even less.

    From AP:

    “A Medicare rate adjustment that cuts an estimated $16 billion in nursing home funding over the next 10 years was enacted at week’s end by the federal Centers for Medicare and Medicaid Services — on top of state-level cuts or flat-funding that already had the industry reeling.

    ‘We can foresee the possibility of nursing homes having to close their doors,’ said David Hebert, a senior vice president at the American Health Care Association. ‘I certainly foresee that we’ll have to let staff go.’

    Already this year, 24 states have cut funding for nursing home care and other health services needed by low-income people who are elderly or disabled, according to the Center on Budget and Policy Priorities, a nonprofit research firm based in Washington, D.C.”

    This is what happens when a nation confuses profit with value and invests only in its wealthiest citizens as a misguided attempt to please the goddess Ayn.

  7. alfred e says:

    @BR: perfect. Correct

    @Winston: Well said. Socialism? Democracy? 44? Fascism? Correct.

    Deception. Lies. Fraud. Won’t get re-elected ever.

  8. TDM says:

    The Establishment Survey is in-accurate because by tracking payrolls of existing businesses new businesses are missed and a birth/death adjustment is needed. The Household Survey is more accurate but less precise because of the small sample size. The Benchmark Revisions which come from state unemployment insurance (UI) tax records are accurate and precise but not timely.

    The big changes in birth/death adjustment followed the “Absurdly Large” 2006 benchmark revision of +0.6%.
    http://www.ritholtz.com/blog/2006/10/absurdly-large-bls-revisions-part-ii/
    After that big miss, the birth/death adjustment was increased, and Barry started complaining about it. The most recent benchmark revision was just released showing a -0.6% revision to payrolls.
    http://www.bls.gov/ces/cesprelbmk.htm
    So after this big miss the BLS will need to take another look at how to calculate the birth/death adjustment. If you want good statistics you need to be patient and wait for tax return data to be released.

  9. alfred e says:

    One more time.

    @BR: perfect. Jobs. As Cevienne would have said. PERIOD.

    @Winston: Correct. Incredibly well said. Bottom line. MSM? Yeah right. The fluffs about to prove to be empty. DUH. Stimulus 2? Lots of luck with that.

    We’re getting f****** and have no chance for an honest government. PERIOD.

  10. jc says:

    TDM…Treasury releases tax receipt data on a daily basis. Thats what Trimtabs uses to produce better results (I mean more accurate data) than BLS. The admin needs some wiggle room to show the stimuli are working and the green shoots are sprouting

  11. Mannwich says:

    But, hey, Goldman to get another $1Billion “if” CIT fails, which means of course that CIT WILL fail. Always in the right place at the right time with an assist from their friends in high places. Happy days are here again.

    http://www.ft.com/cms/s/0/9170b5f2-b10f-11de-b06b-00144feabdc0.html

  12. contrabandista13 says:

    “….. The problem with “lagging indicators” is every idiot in the world seems to use that as an excuse when making their early, incorrect call that the cycle has turned……”

    Especially, when it transforms into a leading indicator as it just did over the last two months….

    Best regards,

    Econolicious

  13. Pat G. says:

    Unemployment can only be determined retrospectively so it makes sense to call it a lagging indicator. When a lagging indicator is consistent for 21 straight months, it then becomes a trend. This can be used to determine the prospective direction that a measurement will most likely continue to take UNTIL the trend is broken. I said this months ago and I still stand by it. Like foreclosures and credit constriction, the jobs situation has not changed. Where does the consumer who is 70% of our GDP get the money to spend? To me, the bailouts are a waste of more money, putting us further in hock and are only making a bad situation, worse.

  14. emmanuel117 says:

    @Mannwich

    They’re still fully hedged.

  15. Mannwich says:

    @emmanuel117: When one has the gov’t in their back-pocket, one is always “fully hedged”……and then some.

  16. investorinpa says:

    And now time for a POSITIVE interlude….24 year old kid kicking arse in the real estate market. This kid is doing well for himself, even in the face of a Deprecession:

    http://contraryriches.blogspot.com/2009/10/multi-millionaire-by-24-how-one-kid-did.html

  17. contrabandista13 says:

    Off Topic:

    Darwin In Chile

    Alvaro Fischer, Daniel C. Dennett, Leda Cosmides, John Tooby, Steven Pinker, Matt Ridley, Helena Cronin, Nicholas Humhrey, Ian McEwan
    Santiago — Punta Arenas — Puerto Williams — The Beagle Channel — Tierra del Fuego — The Extreme South

    EdgeVideo

    http://www.edge.org/documents/archive/edge300.html

    I thought that you may find this interesting. Matt Ridley was one of the speakers. I have read a great deal of his work and found it enlightening as it relates to collective genetic impulses and human belief systems. I have constructed mechanisms and applied them successfully to my trading strategies, based on theories premised from his book “The Origins of Virtue” (recommended reading for all traders and students of collective human behavior). I highly recommend watching his video titled….

    PARALLELS BETWEEN ECONOMICS AND EVOLUTION, OR — WHAT HAPPENS WHEN IDEAS HAVE SEX
    By Matt Ridley

    Best regards,

    Econolicious

  18. ItalicBold says:

    @Mannwich – I really don’t understand how people can look away anymore. This is just plain disgusting. We need to stop waiting around for a white knight and get off our bums.

  19. You would think the government would have the brains to get the NSA to collect the data. After all, their supercomputers know when everyone on the planet blows their noses so figuring out if someone is unemployed should be a breeze for them

  20. @Pat G. Says: October 4th, 2009 at 10:47 pm

    Unemployment can only be determined retrospectively so it makes sense to call it a lagging indicator.

    That is true but if unemployment numbers become big enough they can also be a leading indicator of future spending. The minute someone becomes unemployed I’ll bet their spending decisions change. This can become then the next feed into the negative economic feedback loop aka the vicious circle

  21. Hal says:

    Birth Death model was actually conceived and launched during Clinton administration (albeit small numbers-Bush adm and now Obama Adm just “tweaked” it further to their advantage).

    So was FEMA (1998 and Bush took the heat for FEMA and did nto say he inhereted that mess) and if you check Treasury direct.org or .gov–you will also see that the US debt grew every year in the 90′s so “where’s the surplus” .

    So Abelson data is incorrect on at least the BD model and consequently it makes everything he says else suspect til proven otherwise.

    Actually almost everything written and spoken nowadays is suspect.

    Do your own diligence.

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