Last month the BLS padded unadjusted jobs by 412,000. Curiously, not even the BLS can tell us how that impacted the headline reported job gains.
Understanding the Birth-Death Model
Every month, for 10 years, I added this caution in my jobs report
Birth Death Model
Starting January 2014, I dropped the Birth/Death Model charts from this report.
The birth-death model pertains to the birth and death of corporations not individuals except by implication.
For those who follow the numbers, I retain this caution: Do not subtract the reported Birth-Death number from the reported headline number. That approach is statistically invalid.
The model is wrong at economic turning points and is also heavily revised and thus essentially useless.
I never explained in detail my caution. Starting next month, I will link to this post.
Here are some key details from the BLS link above. The third paragraph is likely to spin your head.
There is an unavoidable lag between an establishment opening for business and its appearance on the sample frame making it available for sampling. Because new firm births generate a portion of employment growth each month, non-sampling methods must be used to estimate this growth.
Earlier research indicated that while both the business birth and death portions of total employment are generally significant, the net contribution is relatively small and stable.
The second component is an auto-regressive integrated moving average (ARIMA) time series model designed to estimate the residual birth-death employment not accounted for by the imputation. The historical time series used to create and test the ARIMA model was derived from the UI universe micro level database, and reflects the actual residual of births and deaths over the past 5 years.
The net birth-death model components are unique to each month and exhibit a seasonal pattern that can result in negative adjustments in some months. These models do not attempt to correct for any other potential error sources in the CES estimates such as sampling error or design limitations. Note that the net birth-death forecasts are not seasonally adjusted, and are applied to the not seasonally adjusted monthly employment estimates to derive the final CES employment estimates.
The third paragraph is likely to confuse anyone. But the key to understanding the insignificance is in the last paragraph above, especially the last sentence.
Seasonally Adjusted vs Unadjusted Nonfarm Jobs
Last month, the BLS reported 157,984,000 nonfarm jobs. Of that total, 412,000 were due to the Birth-Death Adjustment.
Thus, the Birth-Death adjustment padded unadjusted nonfarm jobs by ((412,000/157,984,000) * 100) which is a tint 0.26 percent.
The BLS then took the 157,984,000 jobs and seasonally-adjusted the total to 156,888,000.
The seasonal adjustment subtracted 1,096,000 (over a million jobs) from the unadjusted number despite the 412,000 birth-death addition, but that is an invalid comparison.
Note the seasonally-adjusted number rose from 156,738,000 to 156,888,000 despite the huge decline in the unadjusted number.
The resultant headline was “Jobs increase by 150,000.”
Lovely! But how did the 412,000 impact the seasonally-adjusted gain of 150,000?
My Conversation With the BLS
- Mish: How much did the Birth-Death adjustment impact the seasonally-adjusted gain?
- BLS: Because of our methodology, we don’t know.
- Mish: What is the seasonally-adjusted Birth-Death number?
- BLS: Because of our methodology, we don’t know.
That conversation was not from last month but rather from about 10 years ago. Also. the conversion above is condensed. The BLS was polite, not abrupt as presented above.
The following process, derived from a long conversation, explains why the BLS itself does not know how the birth-death number impacts the headline number.
Five-Step Process
- The BLS calculates the unadjusted birth-death number.
- It applies that adjustment to its unadjusted overall estimate for the month.
- Then it takes the unadjusted total and seasonally adjusts it.
- Then it compares the seasonally-adjusted number for this month and subtracts the seasonally-adjusted number from last month.
- The difference between the seasonally adjusted numbers is the headline total.
That’s why the BLS cannot say, nor can anyone else say, how much the birth death model impacted the seasonally-adjusted headline number.
Here’s another important idea I have been repeating since January.
Of the 894,000 rise in employment in January, 810,000 was due to annual benchmark revisions. And the BLS does not say what months were revised, just poof, here you go.
We cannot, with strong confidence, suggest these reports portray an accurate picture of either jobs or employment.
Discrepancy Between Nonfarm Payrolls and Employment Levels
For a look in detail, at the latest jobs report including a discussion of the huge discrepancy between jobs and employment, please see BLS Jobs Report Stronger than ADP, Fueled in Part by End of UAW Strike
Also see If You Lose a Job, It’s Getting Harder to Find a New One
Another interesting economic discussion with Jeffry Sachs: the psychology on inflation in Argentina, the death of the dollar,…
link to youtu.be
….a bit long but very interesting and educational….thanks
It sure is off topic, so excuse me, but, what did I hear today, that your senile , corrupt, deep state mfckr is calling for WW3 if ”Russia keeps on attacking NATO allies” ?! THAT does it then, doesn t it ? I mean, Russia, for the time being, NEVER attacked no fckn NATO ally,did it ? Russia is indeed , rightfully so, smashing all and everything in Whorekraine, no fckn idiot however would call for nuclear armageddon over the most, corrupt nation in the fckn world, except your senile, corrupt to the bone, mfckr of course…. Pardon my language , I am kind off pissed….rightfully so I d say, all moronic geopolitical insanity considered….
FJB, America’s Caligula.
Hey Mish this is totally off topic bullshit gossip I hope you’ll totally delete inspired as I am right now. Anyway you may have noticed that Ryan O’Neal is currently pushing up daisies so to speak-dead as a doornail so they say-sorry I’ll restate ok little buddy-anyway I was very good friends years ago with Greg Lott and Farrah Fawcett back in the 60’s at the University of Texas. Sadly as close as I was with Farrah, we were not nearly as intimate as I hoped! So anyway when we played Oklahoma in football in the Cotton Bowl in Dallas in 1965 they had a picture of Farrah’s guy Longhorn Greg Lott on the front page of the sports section of the Dallas Morning News. Listen, one look at Greg, the Highland Park , teenagers, college girls and all other women went crazy having some kind of wet dream over Greg the lady killer. Anyway the next year we were all down in Acapulco for spring break with Farrah and Greg but that’s a whole another crazy story.
!
These reports do not include illegals hired to displace higher wage Americans.
Mish,
I love the way you claim your always neutral on bitcoin
Bitcoin is up 270% from the low and not a peep from you !!
But God forbid it goes down 0.5% and there you are with your bitcoin is nefarious and used for terrorist funding posts 🙂
You try to be so smart in your posts but must secretly feel embarrassed that you have no clue about bitcoin and that a decentralized bearer asset is teaching you a lesson.
I can see this is the case because you always censor my comments and refuse to allow them on the comment board.
That is because you are embarrassed. Why not debate me on the comment board ??
Mish – I feel sorry for you
Posting everyday and trying to be so clever – but in the end you are totally clueless
🙂
To refresh your clearly dysfunctional memory. I have frequently commented that Bitcoin is a free market construct.
On September 3, I posted MishTalk TV with Gary Brode on the Grayscale Bitcoin Trust
link to mishtalk.com
On September 11, I posted I Propose a Debate on Bitcoin Between Nassim Taleb and Lyn Alden
link to mishtalk.com
I commented ” I do point out that Bitcoin is a free market construct, and the SEC looks foolish in its battle to keep it off the exchanges. There is an arb opportunity, with risk, for those willing to take it.”
“Lyn Alden is not in that [hype] camp. And she makes a very pragmatic, unemotional, hypeless case.”
On October 24, I commented Gold and Bitcoin Surge with Treasuries Hammered, What’s Going On?
link to mishtalk.com
““Neither party will fix the deficits. Neither party will do anything about mounting debt. No one will do anything about anything because the political system is totally broken. That’s also the message of the Treasury market and gold. Bitcoin advocates would say Bitcoin as well.”
On November 4 I commented The SEC Wants to Expand Regulatory Powers, Missing Crypto Fraud in Plain Sight
link to mishtalk.com
“The Fed and Gensler are alike. Both want more power. Giving it to them will create more damage, not prevent it.”
On November 27 I commented Extreme Hype Required to Get Attention: Climate, Politics, and $10 Million Bitcoin
link to mishtalk.com
Bitcoin was near a recent high when I posted that. I have bashed the SEC for trying to stop the Bitcoin ETF. I posted an article about an arb play.
I don’t like Bitcoin for reasons stated. So what?
I blocked your comments because you are a liar, making claims that I just refuted about when I post on Bitcoin.
Please apologize or go away.
One of my comments applies to you “Anyone who disagrees does not understand Bitcoin.”
And that is where we are.
Anyone who disagree with you is “wrong”
I feel sorry for you and everyone like you. An apology is needed.
Sorry does not work from my POV. Too many problems with what I see and hear on the street. And RH today’s report was a way off.
“Here are some key details from the BLS link above. The third paragraph is likely to spin your head.”
They are using the W.C. Fields method:
If you can’t dazzle them with brilliance, baffle them with bullsh!t.
Really does anybody still beleive in Fairy Tales . . . because the Employment report is the Biggest one around . . . If they want to know how many new jobs were added . . . why don’t they simply look at monthly witholding taxes ???
And if you want to know retail sales then look at retail sales taxes.
Because that would exclude cash-payment jobs, and such underground economy.
And we can’t have such a BIG ERROR in a beautiful model, can we?
Max, it wouldn’t necessarily exclude all cash-payment jobs.
Only the jobs where folks don’t pay their taxes.
🙂
Department of Commerce is similar to the climatologists. When climatologists first revealed their man made global warming fraud the physical scientists asked for the original data set and the correction methods used on the data. Climatologists refused to share their correction methods. They say they lost all of the original data.
Not true.
Their dogs ate their homework.
If this crap does not convince you that the Government is there to keep us saying “WTF does THAT MEAN” – – I am not sure that you CAN be convinced that they are pulling fast ones.