ShadowStats' John Williams to Moneynews: US Job Indicators Are 'Absolutely Bogus'

Tuesday, 09 Oct 2012 07:19 PM

By David A. Patten

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The current models for determining U.S. unemployment are so flawed, and have been so manipulated by politicians of both parties over the decades, that some key indicators are “absolutely bogus” and no longer reflect the economic realities of ordinary Americans, according to private-sector economic analyst Walter J. “John” Williams.

Williams, a specialist in government economic reporting who “exposes and analyzes flaws in current U.S. government economic data and reporting,” according to his ShadowStats website, told Moneynews in an exclusive interview Tuesday that the data manipulation dates back to the administration of Lyndon Johnson in the 1960s, and he blames both political parties.

The latest target of Williams’ ire: Friday’s September jobs report issued by the Bureau of Labor Statistics (BLS), which showed U.S. unemployment dropping sharply to 7.8 percent from 8.1 percent. Based on data collected from 60,000 household surveys, the report recorded the largest one-month jump in working Americans in 29 years: 873,000 were added to the employment rolls — despite an economy so sluggish that gross domestic product growth has been well under 2 percent this year.

Editor's Note: Economist Warns: 50% Unemployment, 100% Inflation Possible

And while Williams isn't jumping to the assumption that the latest jobs report was politically tainted, he is not ruling out that possibility, either.

“These numbers that we’re seeing could well be a desperate effort at a political manipulation,” he said. “Or it may be that the numbers are just so bad, they don’t know what they’re doing. But you’ve got to suspect a lot of funny things are going on here.”

Speaking of the Obama administration, he added: “They know that the numbers aren’t accurate, in the best case. In the worst case, they manipulated them.”

However, the BLS report has slammed into a wall of GOP skepticism.

Former GE Chief Executive Jack Welch told MSNBC the September jobs numbers “defy logic” and stirred up the Internet with a tweet on the matter. Real-estate and entertainment mogul Donald Trump, in a "Fox and Friends" interview, called the report “a lot of monkey business.”

Fueling the skeptics’ fire: A separate BLS report, based on a monthly payroll survey of 141,000 businesses, indicating employers added only 114,000 jobs in September.

Federal Reserve Chairman Ben Bernanke has estimated that the economy must add between 150,000 and 200,000 jobs each month just to keep unemployment from getting worse. So how could unemployment drop precipitously, with so few jobs being created?

Labor Secretary Hilda Solis blasted conspiracy theories suggesting the Obama administration conveniently “cooked the books” in one of the last major economic reports before the election.

“It is insulting when you hear people just cavalierly say somehow we’re manipulating numbers,” Solis told CNN on Friday.

In his exclusive Moneynews interview, Williams echoed strong skepticism about the latest BLS report. But he stopped short of saying political chicanery is necessarily to blame.

He said that government models for determining the unemployment rate, as well as other major indices such as inflation and growth in gross national product, have become so attenuated that they effectively are broken and no longer reflect the economic realities experienced by most Americans.

“The numbers just are not believable, and a lot of that has to do with the way the methodology is applied here,” Williams told Moneynews.

Eighty-eight economists surveyed by Bloomberg prior to the September jobs report estimated that the economy added 115,000 jobs. That level of job creation, the economists said, would raise the unemployment rate to 8.2 percent.

The obvious question: How did such meager job growth result in a 0.3 percentage point drop in unemployment?

In previous BLS reports, the apparent contradiction of moribund job growth coupled with declining unemployment could be attributed to a shrinking work force, as long-term victims of unemployment gave up looking for work. But in September’s report, work-force participation actually ticked up by 0.1 percentage point, to 63.6 percent of the adult population.

Editor's Note: Economist Warns: 50% Unemployment, 100% Inflation Possible

Williams blamed the models and methods used by the BLS, which he said are flawed and historically have been vulnerable to political manipulation.

He noted that the BLS no longer establishes a statistical model for seasonal adjustments and sticks with them for an entire year. In 2004, it decided that modifying the model each month would provide more accurate information.

Since that year, the BLS had tweaked its seasonal adjustments — the filter that the raw data must pass through to adjust for seasonal employment shifts such as the start of a new school year or the Christmas shopping season — from month to month.

For analysts such as Williams, that means month-to-month unemployment rates are no longer comparable, because they do not share the same statistical assumptions. And he believes it contributes to the volatile swings in reported unemployment.

“These numbers generally are worthless,” he told Moneynews. “The markets gyrate over worthless data. The month-to-month comparison in the unemployment rate is absolutely meaningless. If the numbers aren’t comparable, you cannot say if it’s up or down versus the month before, because you don’t know if the numbers are on a consistent basis."

Williams contends the BLS number crunching is off because the Great Recession of 2008 was so severe that it distorted subsequent seasonal adjustments, since seasonal spending patterns drastically changed.

“The seasonal factors became unstable and started gyrated wildly with this concurrent seasonal adjustment process,” he said.

One reason Williams rejects the latest BLS jobs report: It appears seriously out of step with other economic data. To attain a one-month decline in unemployment of 0.3 percentage point, he said, the reported rate of economic expansion would have to be 5 percent to 6 percent — nearly triple the current rate.

Editor's Note: Economist Warns: 50% Unemployment, 100% Inflation Possible

The San Francisco-based consultant also noted that the Federal Reserve has rolled out a third round of monetary expansion, the so-called QE3, to combat weakness in the economy.

“If we were in a recovery, Bernanke wouldn’t be arguing that he’s doing QE3 to bring down the unemployment rate,” he said.

Williams noted that he prefers to track the economy by keeping his finger on the pulse of the economic activity of ordinary people. “I’ll take Main Street USA over errant data any day. If it’s not real, the public generally isn’t going to believe it. There will be some people swayed by it, but you’ll get broad skepticism as you saw on Friday.

“People didn’t believe that number. It’s not happening. The economy’s not recovering,” he said.

Plenty of other economists have said Friday's BLS report overstated the strength of the job market, without criticizing the agency’s methodology.

“This overstates the case,” Moody’s Analytics chief economist Mark Zandi told MSNBC on Friday. “If you look at the details of that 800,000 job gain, a little over half of that was people who are working part-time because they can’t find a full-time job. So that’s not a particularly good thing, and that’s probably related to seasonal adjustment issues and measurement issues, and that will fall out of the data.”

Williams has spent 30 years crunching the government’s economic data, and he is one of the leading critics of its key economic indicators.

He calculated the real unemployment number could be as high as 22 percent. The official definition of unemployment is so narrow, he said, that many people simply fall out of the most common measure of unemployment, known as U-3.

In the United States, he noted, one is no longer deemed to be looking for work if four weeks have passed since one’s last job application was filed. In Europe, he said, workers are considered unemployed if they have browsed the help-wanted ads looking for a job — a much broader definition of what counts as looking for work.

According to Williams, egregious attempts to influence unemployment reports have been documented for both Republican and Democratic administrations in the past, although he noted that prior to the September report, “The reporting, from what I can see, had been reasonably clean in both the Bush II and the Obama camps.”

Editor's Note: Economist Warns: 50% Unemployment, 100% Inflation Possible

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