“Our conclusion is that if small firms aren’t captured well in the advance GDP data, the economy may be growing less quickly than suggested by the recent official data.”

-Jan Hatzius, Goldman Sachs economist

>

This certainly comes as no surprise to us:

“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.

The most likely culprit is the so-called “birth-death” model, which the Labor Department uses to estimate how many companies were created or destroyed.

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 . . .

Government data has difficulty gauging the health of smaller firms because there are simply too many of them, leaving officials to rely on surveys and models that are hit and miss.”

Let’s put some numbers to this: In 2008, 43,546 businesses filed for bankruptcy; Even more are filing in 2009 — Q2 of 2009, the most recent data available, saw 16,014  bankruptcy filings — on pace to run 33% more than the prior year.

BLS simply does not catch all of these failures in the monthly NFP reports.

The next BLS B/D adjustment will be in February 2010, when they qill like add another 800,000 to a million lost jobs to the prior years . . .

>

Source:
Recession shows shortcomings in U.S. economic data
Thu Nov 19, 2009
Emily Kaiser and Nancy Waitz
Reuters

http://www.reuters.com/article/GCA-Economy/idUSTRE5AI56420091119

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.

9 Responses to “Birth Death Model Outpaced By Business Failures”

  1. TulsaTime says:

    Well, that’s one reason the survey data can be useful, but we know they don’t want to report that big ass number.

  2. Winston Munn says:

    The Birth/Death model sounds like a throwback to the Vietnam days and the Defense Department’s use of the body count as a sign of progress in the war.

  3. davossherman@gmail.com says:

    Amazing, one guy (John Williams of Shadow Statistics) can run a small company that can put out an accurate unemployment number and our entire government can’t. John even corrects CPI and the rest of the morose.

    If our government made instruments for airplanes the NTSB would be the biggest branch of the government.

  4. hue says:

    if people are unemployed and not captured in gov’t statistics, then are they really unemployed?

  5. easystreet says:

    I’m totally shocked that the gooberment can’t get their shi* together. I wonder how much other data need revised. Any ideas?

  6. mcmalley says:

    … the collection and analysis of “current” national economic statistics has always been seriously flawed. But it can be no other way. It is impossible to do in a dynamic, complex economy– much less rationally act on such data by Federal government agencies.

    Such knowledge in a social system of exchange & production is vastly dispersed among divergent, socially distant individuals. The bedrock economic principle of ‘division of labor’ in a large nation ‘requires’ a complex diffusion of economic knowledge, in a state of constant flux. The only proven means available for efficiently using this dispersed knowledge is a private market economy.

    Federal central economic planners extensively collect and sift “data” {..no matter how flawed} because they assume they can use it to manipulate the national economy to better outcomes — but they can never even begin to accurately collect the required economic data… and have no chance of productively using whatever they do collect.

  7. Greg says:

    Business leaders extensively collect and sift “data” {..no matter how flawed} because they assume they can use it to manage their firms to better outcomes — but they can never even begin to accurately collect the required economic data… and have no chance of productively using whatever they do collect.

  8. investorinpa says:

    Barry & others…

    Do you think this is the reason why unemployment typically peaks after a recession is over? Bad data gathering means that the number of unemployed bumps up well after a recovery or stopping of a recession? It would seem to make sense that by the time the gubmint gets it right, the rally has started, no?

  9. Transor Z says:

    The corporate dissolution data I’ve seen suggests that dissolutions have been on the rise for 10 years but state data is also suspect.