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Friday, January 6, 2012

Take the 'L' out of 'BLS' and you get...

...what the Bureau of Labor Statistics successfully peddles to the credulous or partisan MSM. But canny observers, such as Daryl Montgomery know that what appears to be an improvement in the labor situation is essentially statistical sleight of hand. How so ? Read the following excerpts from Montgomery's SEEKING ALPHA post, U.S. Non-Farm Payrolls: The Statistical Illusion Of Jobs.

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The smaller the labor force is, the better the headline unemployment rate becomes. The BLS claims these 3 million plus people left the labor force and this justifies purging them from the statistics. There is a problem with their line of reasoning, however. Large numbers of people only leave a labor force during periods of severe economic distress. It does not happen during economic recovery. It does not indicate an employment situation that is improving. Yet, the BLS produces numbers showing things are getting better when this happens. This violates the first rule of statistics - the results must reflect reality. The BLS numbers do not.

Dividing the number of employed in December 2011 by the size of the labor force that should exist based on the population numbers produces an unemployment rate of 9.6%, not 8.5%. This is the headline number that should be reported. If the BLS wants to insist however that more than three million people have indeed left the labor force (and this has continued in the last year - the size of the labor force in December 2011 is smaller than it was in December 2010), it should also make it clear that this indicates that there has been an ongoing recession and no economic recovery has taken place. Both can't happen at the same time, except for a brief period. Either the economic recovery story is a lie or there hasn't been a shrinking labor force.

While mainstream economists will insist that employment is a lagging indicator (more than two years is some lag), this has only been the case in the U.S. years after statistical "improvements" were introduced in the 1980s and 1990s in how government economic numbers were determined. Before that, employment recovered with improving GDP as should be the case. If you think about it, the term jobless recovery makes as much sense as tall midget or genius moron.

The improvement in the weekly unemployment claims is also being cited as evidence of an improving jobs picture. It would be more accurate to say that it is evidence of a jobs picture that can't continue to get worse. As I have stated since at least mid-2010, the weekly claims number will regress toward the mean (move to its long-term average) because eventually there will be few workers who remain to be laid off. After being elevated for several years, the only way that weekly claims can now increase is with a big jump in bankruptcies. This will be avoided as long as the economy holds steady.

What is keeping the U.S. economy from getting worse is the unprecedented budget deficits that the U.S. is running.

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