One of the things we have harped on for quite a long time here at The Big Picture is the flawed BLS Birth Death Model (BDM). Indeed, for about 5 years, I have been hammering away at how misleading this adjustments is over the course of a year. In 2007, for example, 75% of the new jobs were hypothesized, rather than actually measured.

On a monthly basis, it is challenging to figure out the impact.  Yet that doesn’t stop people from making bad assertions. For example, see this Squawk Box segment, at the 6:00 minute mark, where Bob Barberra and Steve Liesman manage to correct Rick Santelli’s erroneous statement about BD. This is typical of the misleading interpretations we see floating around the net. (I think my pal John overstates it as well).

Taking apart the numbers each month, I have learned that it is difficult to parse the BD effect on a monthly basis. That is because the way the BLS constructs NFP number is to take the original, unseasonably adjusted data, add the B/D adjustment, AND THEN seasonably adjust it.

If you go to the Establishment survey home page, click the tab for tables, and look at the non seasonably adjusted data, (Normal seasonal movements, estimated employment change and test of significance, in thousands)  you will find that the total private sector job creation was 863k. I believe that is the where the B/D adjustment takes place — not from the final NFP number . . .

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Previously:
NFP: Birth/Death Adjustments (December 6th, 2007)

Overstated Job Growth, Understated Inflation (January 4th, 2008)

Birth Death Adjustment Coming Under Fire (October 4th, 2009)

Historical Net Birth/Death Adjustments
http://www.bls.gov/ces/cesbdhst.htm

CES Net Birth/Death Model
http://www.bls.gov/web/cesbd.htm

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.

11 Responses to “(Mis)Understanding the Birth Death Adjustment”

  1. Jim67545 says:

    Pardon? The un-seasonally adjusted totals equal 863k jobs created and, after adjustments, it was a tenth of that? Do I understand you correctly? Do they capture the birth of jobs but not the death of jobs so have to estimate that? Perhaps too simplistically stated but is that what you are saying?

  2. alfred e says:

    Went the the BLS page. Boy do they know how to put a positive spin on things.

    Bah Humbug.

  3. riffraff says:

    In these B/D discussions, what I always fail to see mentioned is going back to around year 2000, the B/D model added almost nothing. The BLS just keeps adding categories of fantasized jobs. The upwards path of hypothesized jobs since then is astounding…

    ~~~

    BR: Here is what is noted at the 2007 post:

    Since 2003, the B/D adjustment has been part and parcel to BLS’ Current Employment Statistics (CES) program, the official measure of US employment.

    In brief, the Birth Death adjustment imagines (hypothesizes) how many jobs were created by companies too new and/or too small to participate or be found by CES. The model attempts to create what is perceived as a BLS error at the start of any recovery, when many new jobs are created but missed by BLS.

    But in fixing one problem, they created another: At the other end of the cycle — where we are today — the B/D adjustment potentially will hypothesize lots of phantom job creation. That explains the stability in construction and finance jobs in the monthly data. (See Bloomberg’s Why Haven’t Home Construction Jobs Disappeared)

  4. ToNYC says:

    Grigori Aleksandrovich Potemkin had elaborate fake villages constructed for Catherine the Great’s tours of the Ukraine and the Crimea He had a good run until reality bit him in the ass. The BLS has metasthesized his technique in the statistical space to kick up the confidence in tjhe Stock Market valuation which Alan Greenspan now pontificates is the cause of economic activity. Fourteen years later, he jokingly
    (01 July 2010_0700 ET _CNBC) admits he still doesn’t understand his “irrational exuberance” speech. Crockmeisters on the Plantation, keeping the Serfs working for the 1 per cent, managed by the Federal Reserve System of credit control…. Borrow at zero from Uncle Ben, loan to consumers at 30%

  5. alfred e says:

    @ToNYC: So true.

  6. beaufou says:

    @ToNYC:
    It isn’t a solvency problem, it’s all about making credit available…keep repeating it until you believe it.

  7. philipat says:

    What is the accuracy of the BD adjustment over a historical 12 month period? If OK, why is it not possible to use an MAT adjustment to smooth out monthly variances? Alternatively, could the data series be presented without BD and make a restroactive quarterly adjustment to the data?

  8. ToNYC says:

    @philipat etal.
    If we engage (in)sufficiently deep and wide enough about misnomers or red herrings, do they crystallize into a bridge to somewhere useful? If there was a double dip, it was a few hundred billion to make a dead cat bounce. With no laser-focused attention on incenting small business to add jobs, there are no net new jobs and no economic growth. Mr. Obama can talk a good game, but he ‘s got to stop blowing the bank’s horn. The banks will keeping the consumer credit spread game and hiding the underwater loans (enabled by the Fed like Japan with same consequences) working ’till the wheels fall off and they get bailed out again.

  9. philipat says:

    @ToNYC

    Roger all of that. But we’re still stuck with the BD adjustment!!

  10. dead hobo says:

    BR surmised:

    Taking apart the numbers each month, I have learned that it is difficult to parse the BD effect on a monthly basis. That is because the way the BLS constructs NFP number is to take the original, unseasonably adjusted data, add the B/D adjustment, AND THEN seasonably adjust it.

    reply:
    ———–
    (A+B) – C = (A-C) + B.

    And/or

    You are implying or stating the B/D adjustment is a seasonally adjusted statistical estimation that is added to a seasonally adjusted survey number. In other words, a seasonally adjusted estimate is added to a seasonally adjustment survey count. A guess is still a guess.

    I’m missing the point if this order of addition is supposed to be exculpatory, even if the guess is seasonally adjusted.

  11. me says:

    So after misleading US all of last year, the BLS says they overstated jobs last year by 2,834,000, but we should belive it?

    2010 Total nonfarm over-the-month change, not seasonally adjusted (in thousands) Jan Total Nonfarm over-the-month change
    -2834

    If they miss by 200,000 j9bs a month it is mystical bullshit, just like Wall Street fed us with the AAA stuff.

    Wrong is wrong.