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(Mis)Understanding the Birth Death Adjustment

Posted By Barry Ritholtz On July 3, 2010 @ 4:30 pm In Data Analysis,Employment | Comments Disabled

One of the things we have harped on for quite a long time here [1] at The Big Picture is the flawed BLS Birth Death Model [2] (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 [3], 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 [4] 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 [5], click the tab for tables [6], and look at the non seasonably adjusted data, (Normal seasonal movements, estimated employment change and test of significance, in thousands [7])  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 . . .

NFP: Birth/Death Adjustments [8] (December 6th, 2007)

Overstated Job Growth, Understated Inflation [9] (January 4th, 2008)

Birth Death Adjustment Coming Under Fire [10] (October 4th, 2009)

Historical Net Birth/Death Adjustments [11]

CES Net Birth/Death Model [2]

Article printed from The Big Picture: http://www.ritholtz.com/blog

URL to article: http://www.ritholtz.com/blog/2010/07/misunderstanding-the-birth-death-adjustment/

URLs in this post:

[1] quite a long time here: http://www.google.com/search?ie=UTF-8&oe=UTF-8&q=Birth+Death+Adjustment&btnG=Search+Big+Picture&domains=http%3A%2F%2Fbigpicture.typepad.com%2F&sitesearch=http%3A%2F%2Fbigpicture.typepad.com%2F

[2] Birth Death Model: http://www.bls.gov/web/cesbd.htm

[3] Squawk Box segment: http://www.cnbc.com/id/15840232?video=1535816810&play=1

[4] John overstates: http://www.ritholtz.com/blog/2010/07/the-dismal-science-really-is/

[5] home page: http://www.bls.gov/ces/

[6] tables: http://www.bls.gov/ces/#tables

[7] Normal seasonal movements, estimated employment change and test of significance, in thousands: http://www.ritholtz.com/blogftp://ftp.bls.gov/pub/suppl/empsit.tab1.txt

[8] NFP: Birth/Death Adjustments: http://www.ritholtz.com/blog/2007/12/nfp-birthdeath-adjustments/

[9] Overstated Job Growth, Understated Inflation: http://www.ritholtz.com/blog/2008/01/overstated-job-growth-understated-inflation/

[10] Birth Death Adjustment Coming Under Fire: http://www.ritholtz.com/blog/2009/10/birth-death-adjustment-coming-under-fire/

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

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