August job losses outstrip expectations; Update: Initial claims still at 570K, retail sales off

Here is the best explanation of how the numbers have been jiggered to make it seem better than it is.

GOVERNMENT ECONOMIC REPORTS: THINGS YOU’VE
SUSPECTED BUT WERE AFRAID TO ASK!”

A Series Authored by Walter J. “John” Williams

“Employment and Unemployment Reporting”
(Part Two in a Series of Five)

August 24, 2004
_____

The Bureau of Labor Statistics (BLS), U.S. Department of Labor, conducts two monthly surveys of U.S. employment and unemployment. Results usually are released on the first Friday of the month following the survey:

Household Survey (also Current Population Survey) — The household survey generates the unemployment rate from a statistically designed monthly sampling of roughly 60,000 households. Other surveys, such as the annual poverty survey, often are piggybacked on the employment questions. The survey measures the number of people who have jobs.

Payroll Survey (also Establishment or Current Employment Statistics Survey) — The payroll survey generates an estimate of the number of nonfarm jobs in the U.S. economy, based on a monthly non-random sampling of payroll tax filings of about 160,000 U.S. corporations and government agencies. The survey measures the number of jobs (some individuals hold more than one job).

The household survey is conducted during the week that includes the 12th of the month. The payroll survey is conducted as of the payroll period that includes the 12th of the month. Other than for seasonal factors, the household survey gets revised only with series or population redefinition. The payroll series is revised for two months following the initial release and then again in an annual benchmark revision.

Where the household survey includes farm workers, the self-employed and workers in private homes, the payroll survey does not. The payroll survey counts jobs, making no adjustment for multiple jobholders. Yet, adjusting for all differences, the BLS never has been able to reconcile the two series within one million jobs.

Conventional wisdom in the financial community is that the payroll survey is more accurate, given its larger sampling base. To the contrary, the household is scientifically designed, and the error can be estimated to any degree desired. The payroll data are haphazard at best, and the BLS has no idea of potential reporting error.

The BLS estimates a 90% confidence interval for a change in the unemployment rate of ±0.22%, and a 90% confidence interval for the monthly change in payrolls of ±108,000. The BLS, however, admits the payroll survey’s confidence interval is not solid, given built in biases and the lack of randomness in the monthly sample.

The payroll survey used to include a regular monthly bias factor of about +150,000 jobs. Those jobs were added each month for good measure, as an estimate of jobs created by new companies. Companies that went out of business generally were assumed to be employing the same number of people as before they went out of business.

In the last couple of years, the BLS has modeled and seasonally adjusted its bias factor; there is no more guesstimation. Accordingly, new monthly bias factors have ranged from -321,000 to +270,000 during the last year. This, combined with continuous seasonal adjustment revisions, has added to the volatility of recent monthly reporting.

Suggesting that the household survey is more accurate than the payroll survey, however, does not mean household survey accurately depicts unemployment. While its measures have definable statistical accuracy, the accuracy is related only to the underlying questions surveyed and to the universe of people surveyed.

The popularly followed unemployment rate was 5.5% in July 2004, seasonally adjusted. That is known as U-3, one of six unemployment rates published by the BLS. The broadest U-6 measure was 9.5%, including discouraged and marginally attached workers.

Up until the Clinton administration, a discouraged worker was one who was willing, able and ready to work but had given up looking because there were no jobs to be had. The Clinton administration dismissed to the non-reporting netherworld about five million discouraged workers who had been so categorized for more than a year. As of July 2004, the less-than-a-year discouraged workers total 504,000. Adding in the netherworld takes the unemployment rate up to about 12.5%.

The Clinton administration also reduced monthly household sampling from 60,000 to about 50,000, eliminating significant surveying in the inner cities. Despite claims of corrective statistical adjustments, reported unemployment among people of color declined sharply, and the piggybacked poverty survey showed a remarkable reversal in decades of worsening poverty trends.

Somehow, the Clinton administration successfully set into motion reestablishing the full 60,000 survey for the benefit of the current Bush administration’s monthly household survey.

While the preceding concentrates on the numbers that tend to move the markets, the household survey also measures employment. The payroll survey also surveys average hourly and weekly earnings and average workweek.

PierreLegrand on September 3, 2009 at 1:47 PM