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The miracle of Birth / Death, how to magically turn -287,000 into -20,000

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May 04, 2008 – Comments (6)

The government published several better than expected pieces of economic data last week that were celebrated by the media, the last of which was the April employment report.  It’s funny how we call a loss of 20,000 jobs in a single month good news, but given economists’ expectations for a loss of 75,000 to 80,000 I guess that it was.  Unfortunately, things aren’t quite as rosy as the government would like us to believe.  Once again the BS…er uh the BLS (Bureau of Labor Statistics) used the magical “birth / death” adjustment to make the jobs report look much better than it really was.  This month, the magical birth / death adjustment created 267,000 imaginary new jobs out of thin air.  If this “adjustment” had not been made to the official employment number the economy would have actually lost 287,000 jobs in April!!! 

I don’t know about you, but I personally find it very hard to believe given the current state of the economy and tight credit conditions that more companies were born than died, let alone that over a quarter of a million new jobs were created by these new phantom companies.  According to the birth / death adjustment, 45,000 new jobs were added in construction and 8,000 new jobs were added in the financial services industry in April.  What?  I highly doubt it.  I guess that the person who is in charge of making this adjustment hasn’t been watching the news much lately.

Add this questionable jobs number to the 0.4% increase in consumer spending, which was really only equivalent to a 0.1% increase after the fact that food and gas are so unbelievably expensive right now is factored out, and the 0.6% increase in Q1 GDP, which was really -0.4% once the bloated inventories and foreign trade are backed out, and the economy does not look nearly as pretty as all of the bulls out there were lead to believe last week.  It’s no skin off of my back, as someone who is fairly fully invested in the market and who rarely shorts stocks I welcome an irrational rally.  I’d think twice about jumping right back into consumer discretionary stocks, especially restaurants and specialty retailers though.  These are sectors that I have completely avoided.

Deej

6 Comments – Post Your Own

#1) On May 04, 2008 at 9:17 PM, dwot (51.92) wrote:

I just bought 4 liters of milk, $8.99 where I am...

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#2) On May 04, 2008 at 10:27 PM, eskatonic (29.34) wrote:

its like pro forma earnings all over again.   "... and then the accounting fairy sprinkles magic dust on the books and we have a profit." 

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#3) On May 05, 2008 at 10:47 AM, mandrake66 (41.21) wrote:

The birth/death adjustment supposedly works in normal times by simulating employment activity the model would otherwise miss. The key is 'normal' times, which these definitely are not, and the reputed employment gains in financial services, construction, and tourism that the adjustment is claiming are nonsensical.

This adjustment is farcical even when it works. They should drop it, use the real numbers available to them, and adjust them later if they are inadequate, rather than use a hallucination that occasionally approximates reality and adjust it when it doesn't. 

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#4) On May 05, 2008 at 11:19 AM, bellard (99.12) wrote:

Deej;

As an economist, I never use unemployment, or "jobs" figures provided by the US. These figures are statistical estimates, or surveys, and have no value as to predictve power imho.

Maybe actual US revenue receipts from various "worker" related activities would be a better source. 

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#5) On May 05, 2008 at 3:55 PM, GS751 (27.63) wrote:

I am not an economist but I do understand supply and demand....... and can spot bull when I see it  love the comment about the BLS. 

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#6) On May 05, 2008 at 5:32 PM, mindmuse (34.58) wrote:

I'm inviting all those 45,000 new construction workers to my house for a party this weekend. I figure a couple of six packs is going to cover it pretty well...

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