Saturday, February 7, 2009

The Phony January Unemployment Numbers Just in Time for a Phony Stimulus Package

This was President Barack Obama on the weak employment numbers for January:

These numbers demand action. It is inexcusable and irresponsible to get bogged down in distraction and delay while millions of Americans are being put out of work. It is time for Congress to act.
This was the WSJ headline on the weak employment numbers and the stimulus package:

Soaring Job Losses Drive Stimulus Deal
Here's some nonsense from Bank of Tokyo-Mitsubishi UFJ Chief Economist in New York, Chris Rupkey, as quoted by WSJ:

These job losses are such that it's going to be hard for the economy to regain its footing until 2010. I'm trying to calm people down but after today's numbers it's not easy.
This is the general picture of the economy held by the average person on the street as promoted by the President, mainstream media and many economists.

The economy is in dire straits, as displayed by these terrible employment numbers, and something needs to be done. Then, of course, the politicians takeover with their voodoo "stimulus" package.

Here's what is really going on. First as I pointed out earlier, the unemployment number is a lagging number. This means it is going to be worst near the end of a recession. The weak number reported in January doesn't mean the recession is over, e.g. February's number and March's number and April's number and on and on could, theoretically, be worse than January's (as the Jeffrey Tucker diversionary wing of Austrian economics will be happy I pointed out.) However, given the money the Fed is printing, it would not be surprising that we are at bottom or within a couple of months of the bottom.

Thus, we may be a lot closer to the end of the recession, as I believe, than President Obama would like you to believe.

On top of this, it is always good to check in at a time like this with NyPo's John Crudele. He has developed a niche in following various government manipulations of economic data. So what does he say about the January data? This is what he wrote the day before the data was released:

PREPARE yourself to be shocked.

Tomorrow the Labor Department will announce the number of jobs that were lost in January, along with the nation's newest unemployment rate.

We all know the numbers won't be good. In fact, they will be bad.

I'm going to explain in this column why the latest payroll figures could be absolutely horrible and why these statistics are being made to look worse by a simple statistical quirk that the Labor Department refuses to acknowledge.

But if I'm right, this is information that will keep you from jumping in front of a bus, and will prevent your elected officials from making panicky, expensive decisions.
Well, they made the panicky, expensive decision to pass the stimulus package, partly because of the unemployment numbers, but lets let Crudele continue:

January tends to disappoint.

Is it just the weather? Do companies simply lay off more people in the first month of year, even when Christmas goes well?

And if so, why do they suddenly hire new workers in February, which is as economically dreary as January?

Here's what I think is going on.

I have written often about how the Labor Department uses assumptions that it calls the Birth/Death Model.

The Birth/Death model is the government's guess as to the number of new companies being formed or going out of business in each month of the year.

And, guess what? The Labor Department assumes that there is a net gain in new companies in each and every month - except January.

In fact, government statisticians subtract an enormous number of jobs out of their total count each January...the decline of 17,000 jobs in January 2008 - the number shocked the experts and caused a series of job cuts that hasn't ended yet.

Well, the Labor Department subtracted 378,000 jobs from the nation's total payrolls that month because of its Birth/Death model.

Did all those companies die? Probably not; that's just the assumptions that the government long ago decided to make.

The same pessimistic assumptions are made every January. In January 2007, a total of 179,000 jobs were deducted by the Birth/Death model; 193,000 were subtracted in the first month of 2006; 280,000 came off the total in January '05 and a whopping 321,000 in January 2004.

Bottom line: There is no reason to believe the Labor Department won't make the same dour Birth/Death assumptions in tomorrow's count.

That's why the January employment report has a good chance of being worse than expected - worse than horrible. And that is also the reason you should treat the announcement with a deep sense of skepticism.
There you have it. The LD uses January as the month to throw the economy under the bus. Even deducting an amazing 321,000 jobs from the numbers in January '04. So what did the LD do for January 2009 with their Brth/Death model? They subtracted, are you sitting down, 356,000 numbers from the total employment number.

Without that adjustment, the January climb in unemployment would have been only 242,000, instead of the reported 598,000 jobs. This would have suggested the possibility that the peak in unemployment might have already passed with the December payroll numbers at 577,000 and the November numbers at a loss of 597,000. But Obama wouldn't have had the "unemployment is getting worse" hammer without the huge Birth/Death model adjustment. And, viola, we have the huge 356,000 added to the unemployment number, which resulted in decades long unemployment records being broken in January--just in time for a pork laden "stimulus" package.

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