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Better Job Numbers? Check the Stats First

Friday, 07 Aug 2009 10:23 AM

By Michael Carr

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The Bureau of Labor Statistics (BLS) reported that only 247,000 Americans lost their jobs in July and that the unemployment rate dropped to 9.4 percent.

This is good news, marking the first time unemployment had declines in 15 months.

Analysts had been expecting to see about 320,000 job losses, and the consensus forecast was that the unemployment rate was going to go up to 9.6 percent. Looking at non-seasonally adjusted data, they may have been right after all.

Without the seasonal adjustments, the Current Employment Situation report shows that 1.33 million jobs were lost.

Yet, according to the BLS, about 1.1 million of those people weren’t actually looking for work so they were “seasonally adjusted” and viola, unemployment declined.

The jobs number, it turns out, is in the statistical models of the BLS.

How does this type of statistical illusion work?

BLS thinks that the raw data is subject to seasonal trends.

In other words, more people are looking for work in the summer so they reduce the number of job seekers in those months to reflect what they believe to be the underlying economic trend.

Other estimates that factor into their report include the number of jobs created by small businesses.

The rationale for this is that the government just can’t keep up with the private sector, so they use a best guess of the number of jobs being created each month.

It all comes down to the reality that the unemployment report is the best effort of statisticians to reflect the reality of a dynamic economy.

This month, by reducing the number of job seekers and estimating that a small number of new jobs were created, we saw unemployment “decrease,” despite the reality, which is that the numbers are more likely close to the initial estimates, that is, just as bad as always.

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