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March 06, 2005

Send in the Clowns
by Rob Kirby

We have all been treated to yet another fanciful take on the labor situation in the good ole U.S. of A. again this morning folks.

The Bureau of Labor Statistics [BLS] reported that non farm payrolls increased by 262,000 in February. This was widely reported by the main stream media to be roughly 40,000 ahead of expectations of 220k - 225k expected new jobs.

Well folks, a visit to the BLS web site and look what prying eyes [ones that want to know the truth] can find:

http://www.bls.gov/ces/cesbmk05.htm

"The March 2004 total nonfarm payroll employment estimate was revised upward by approximately 203,000 or 0.2 percent. Over the past decade, benchmark revisions have averaged 0.2 percent, with an absolute range from less than 0.05 percent to 0.5 percent. Benchmark revisions are a standard part of the payroll survey estimation process. The benchmark adjustment represents a once-a-year re-anchoring, based on March data, of sample-based employment estimates to full population counts available through UI tax records filed by nearly all employers with State Employment Security agencies. See the Benchmark Article for further information."

Last Modified Date: February 4, 2005

According to the BLS, 11/12ths of this increase was factored into Feb. numbers [186,000]. So folks, on my planet we back 186,000 out of the 262,000 published number and we now have a grand total of 76,000 new jobs. But we are not done yet. The BLS uses another hedonic measure called the birth/death model. As you can see here, an additional 100,000 jobs were added to the headline number published. So backing this number out of 76k and we actually lost 24,000 jobs without the use of hedonics:

See: http://www.bls.gov/web/cesbd.htm and http://www.bls.gov/web/cesbmart.htm#2

"Benchmarks are established for each basic estimating cell and are aggregated to develop published levels. On a not seasonally adjusted basis, the sample-based estimates for the year preceding and the year following the benchmark also are then subject to revision. Employment estimates for the months between the most recent March benchmark and the previous year's benchmark are adjusted using a "wedge-back" procedure. In this process, the difference between the benchmark level and the previously published March estimate for each estimating cell is computed. This difference, or error, is linearly distributed across the 11 months of estimates subsequent to the previous benchmark; eleven-twelfths of the March difference is added to February estimates, ten-twelfths to January estimates, and so on, ending with the previous April estimates, which receive one-twelfth of the March difference. The wedge procedure assumes that the total estimation error accumulated at a steady rate since the last benchmark. Applying previously derived over-the-month sample changes to the revised March level yields revised estimates for the months following the March benchmark. New net birth/death model estimates also are calculated and applied during post-benchmark estimation, and new sample is introduced from the annual update." [Emphasis added]

This is hedonics at its very best folks! The stock market simply loved the published headline number - the DJIA is up 89 points at the time of writing. Wonder how the market might have reacted if they had only known? Why do you suppose these people bother publishing numbers anyway? Do any of you really think that foreigners don't know what these clowns are up to? Look at the dollar! To me, dear reader, this is the essence of reality and news - not the squawk on the bubble vision box.

Rob Kirby
Kirby Analytics

Copyright © 2004 - 2006 Rob Kirby

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