NFP: Birth/Death Adjustments

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).

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)

I suspect the misguided attempt to reproduce this modeling error helps explain yesterday’s baffling ADP data.

Ray Stone of Stone & McCarthy Research Associates notes what is the most serious defect of the BDM: “At the same time we recognized the limitations of the BDM. The most serious limitation of the BDM is that it is a time-series model, and as such, does not pick up turning points or inflection points.”

And that is very likely where we are today.

To give you a better idea of how badly the B/D is currently skewing the data, consider these charts below (via Econbrowser). Looking at the changes of the past 3 years, its apparent that the B/D model went from being a modest portion of the CES data to being the increasingly dominant source of reported new jobs over the past 12 months:

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12 mo change payroll
chart courtesy of Econbrowser

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Indeed, the actual newly created jobs that are measured — and remember, it is a supposed to be a survey measure of new jobs, not a hypothetical model –  has dropped radically.

As the chart below shows, the measured portion of CES was near 70% in 2005-06. Now, it has become so increasingly dominated by the hypothesized B/D adjustment, that a mere 20% of the NFP data is truly a measure of the 400,000 participating firms.

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12 mo sample source
chart courtesy of Econbrowser
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In October 2007, the BLS data on job creation has ballooned up to 80% imagined, and a mere 20% measured. That is not a formula for accuracy or precision.

This suggests several important things to us about the BLS NFP data:

• It has moved from a model highly reliant on measurement to a model highly reliant on more modeling;

• The amount of job overstatement has gone from moderate to very strong;

• If our analysis is correct, than Economic growth is much weaker than reported;

This is consistent with what we have seen from various sentiment surveys. More robust job creation would moderate the general malaise that seems show up in the University of Michigan’s Consumer Survey Center and the Conference Board survey of consumer attitudes on present economic conditions.

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I’ll have more later this week on exactly how much I can deduce the BLS B/D has corrupted the data, and what a more accurate amount of job creation actually might be.

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Sources:

Current Employment Statistics (CES)
U.S. Department of Labor
Bureau of Labor Statistics

http://www.bls.gov/sae/home.htm

Trusting the birth/death model
James Hamilton
Econbrowser, November 16, 2007 08:17 AM   http://www.econbrowser.com/archives/2007/11/trusting_the_bi.html

Why Haven’t Home Construction Jobs Disappeared
John M. Berry
Bloomberg, July 9 2007

http://www.bloomberg.com/apps/news?pid=newsarchive&sid=azttcmXd75qk

Category: Data Analysis, Economy, Employment, Psychology

Cody and Jim Rogers on Fox Business

Category: Books, Economy, Federal Reserve, Inflation

Amazon’s Most Wished For, Most Gifted, and Best Selling Items

Category: Books, Consumer Spending, Film, Music

TechTicker

Congrats to my pal Paul the K on his new web TV gig with Yahoo:

Yahoo TechTicker To Go After CNBC Crowd: The show will be called TechTicker, and it launches
in January. The goal is to attract the CNBC crowd – people who want to be
immersed in finance news all day long.  The hosts include Henry Blodget (Silicon Alley Insider), Sarah Lacy (Business Week columnist) and
Paul Kedrosky, plus one additional person who
has yet to be named. The team will produce 10-20 original segments per week day,
which will be shown live on the site. When live content isn’t streaming, old
content will show on a loop.

Look out, Howard, they are coming after you!

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via TechCrunch

Category: Financial Press, Video, Web/Tech

Inflation IN-Inflation

Category: Commodities, Inflation

Jobs Surge!

Category: Economy, Employment, Media

What is Temp Work Saying About GDP and NFP?

Category: Data Analysis, Economy, Employment

Here Comes Another Bubble

Hysterical . . .

via GMSV

Category: Valuation, Video, Web/Tech

JJ Grey & Mofro

Mofro
I was starting to put together this year’s Different Kind of Top 10 Music List (prior versions here: 2006, 2005  and 2004), when I realized I hadn’t written up one of my favorite discs this year: Country Ghetto by JJ Grey & Mofro.

I was driving home one night.,. when I hear this sound come oozing out of my car speakers: A funky, steamy, swamp rock blues number, with a long intro that finally came to a great groove: (slide over here and click Turpentine)

On the strength of that song, I ordered the disc, and I was not disappointed. The music is a great cross-breeding experiment across genres: Start with swamp rock, add some smoldering blues, slip in  vintage soul, and finally, some gospel-fried funk.

Songwriting influences are apparent: Muddy Waters, John Lee Hooker,
Jerry Reed, Bill Withers, Otis Redding, Dr. John, Sly
& The Family Stone, Van Morrison, Howlin’ Wolf, George Jones, and James Brown.

Reviews:

"a down-and-dirty delight, and a fine addition to the swamp rock canon"   -allmusic.com

"intriguing and fortuitous… Grey’s a songwriter with a sharp wit and a knack for skewering the hypocrites, jive politicians and carpetbaggers who litter the landscape. The MOFRO vibe travels freely among swamp funk, blues, rock and soul, and does so with a certain down-and-dirty swagger that’s as real as it is appealing."    -Billboard

"A Southern-fried Sly and the Family Stone."    -Don McLees

Other links: 

Home page
My Space (5 streaming songs)
Lyrics

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Videos after the jump.

(Um, might someone from Madison House Management consider releasing some higher quality videos to YouTube?   Most of these are pretty medicore sound quality . . . )

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Category: Digital Media, Music

W.A.F.

Category: Psychology, Technology, Web/Tech