The Truth Behind Today's BLS Report

Tyler Durden's picture

The confidence game in turbo boost mode. The market is oblivious of the underlying data behind today's "better than expected" BLS computer model output. Yet for the few remaining who do care about the increasingly irrelevant fundamentals, we provide some observations. Here are facts from John Williams' Shadow Stats:

July usually sees a regular pattern of planned automobile production line shutdowns to accommodate retooling for the new model year, but recent disruptions to the auto industry have changed pattern this year. Without the usual pattern of shutdowns, the government’s computers nonetheless responded by creating the usual offsetting boost in jobs, not only in the auto industry, but in supporting industries as well. The auto industry itself was alone among durable goods manufacturing industries in showing a reported, seasonally-adjusted monthly gain in July, up by 28,000 jobs. [Would anybody who recently got a job at Chrysler and GM please write us immediately]


While Wall Street likely will hype the July employment results as confirmation that economy has turned the corner, such hype and resulting overly optimistic expectations should be slammed in the months ahead, when the positive reporting distortions reverse out in a normal catch-up process.


The unadjusted annual declines in the June and July payrolls remain the deepest since a similar decline at the trough of the 1958 recession, but still shy of the 4.9% trough seen in the 1949 downturn. When the 1949 annual low growth is broken, most likely next month, the annual percentage contraction in payrolls will be the most severe since the production shutdown following World War II.


- Birth-Death/Bias Factor Adjustment. As discussed in SGS Newsletter No. 51, Birth-Death Model biases tend to overstate payroll employment during recessions. Never designed to handle the downside pressures from an economic contraction, the model adds a fairly consistent upside bias to the payroll levels each year, currently averaging about 76,000 jobs per month. The unadjusted July 2009 bias was 32,000, up from 25,000 the year before, but down from 185,000 in June.

And some observations from David Rosenberg:

U.S. nonfarm payroll surprise but less than meets the eye
Today's employment report is being treated as a 'green shoot' of major proportions. While it was by far the best jobs performance of the year, much of the better-than-expected tally in nonfarm payrolls reflected the bounce in auto production as well as the distortion from the federal census workers. Combined, these two influences effectively "added" 100,000 to the headline number, so net-net, the consensus view of -325,000 was not as far off the mark as the market believed at first glance.

  • Payrolls came in at -247k in July — the consensus was at -325k
  • Upward revisions by 43k to the back data
  • Unemployment rate down to 9.4% from 9.5% (but as in Canada, due to a sliding labour force — down 422k in the U.S.)
  • We are going to see a big increase in industrial production for July — manufacturing workweek jumped 0.8% MoM
  • Income was surprisingly strong — average weekly earnings rose 0.5% MoM (after a 0.3% decline in June)

The auto sector added 28,200 to the industry payroll in July, which was the highest tally in 11 years. To show you just how big that really is, it is a 69% annualized surge. Normally, the industry, which is in secular decline, posts job losses of between 20,000 and 30,000 consistently, so this alone represented roughly a 50,000 swing. We estimate that there was about a 30,000 swing in the rest of the manufacturing sector due to the spillover from the current inventory adjustment in the motor vehicle industry. The 0.3% MoM increase in the workweek was also skewed by the 4.1% MoM jump in the auto sector.

[T]here have been large fluctuations in the federal government payroll too. After hiring a slew of Census workers in the spring, there were 57,000 layoffs in May-June and then we saw in today’s report that 12,000 federal workers were “hired” in July. Again, mathematically, this contributed about 20,000 to today’s headline number. In other words, and we have no intent on raining on anyone’s parade, there was about 100,000 non-recurring payrolls in that top-line figure. It may be dangerous to extrapolate today’s report into a view that we are about to fully turn the corner on the job market front.

To be sure, the drop in the unemployment rate was a surprise, but it was all due to the slide in the labour force — the employment-to-population ratio gives a more accurate picture of the slack in the labour market and the hidden secret in today’s report was that this metric slid to a 25-year low of 59.4% from 59.5% in June and 61.0% at the turn of the year. Of those unemployed, 33.8% of them have been unemployed now for over 27 weeks — a record amount (was at 29.0% in June and was at 17.5% at the start of this recession).

And to conclude with Rosie:

“Bear markets have three stages – (i) sharp down, ii) reflexive rebound, and iii) a drawn-out fundamental downtrend”.

We have little doubt as to which stage we are in today.


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Anonymous's picture

Yeah, the amount of "finessing" (to put it charitably) that goes on with the BLS numbers is astounding. John Williams is the man - if you read the story about why he created shadow stats it makes perfect sense.

The manipulated inflation numbers are probably/potentially the most obvious to the sheeple. Sooner or later they'll notice how much more they're paying for the basics (food & energy primarily) They can't escape reality forever.

We wrote about this back in April 2008:

ghostfaceinvestah's picture

I do admire his work - his number "feel" much more intuitively correct than the official numbers.  Not that I think the BLS is being intentionally false, it's just that their numbers look like what they are - created by committee. Total mess.

Anonymous's picture

The government has a vested interest to under report the CPI figures to keep the entitlement programs from growing faster.

stockoperator's picture

It should be called BS report from now on.

Anonymous's picture

Yes! just drop the "l" from the middle of the name

Apocalypse Now's picture

The L actually works, it is the Bull (Laughing) Shit report

Anonymous's picture

It seems to me that seasonality has played a role:
the auto sector normally sheds a big number of jobs during the Summer, a less substantial decline means an upswing after seasonal adjustment.


Anonymous's picture

Look, I am not nearly as bearish as most of your readers but today's run up is seriously sick. There is no way that the market ought to be this high (but I've said the same thing since S&P 900).

Will hide in cash until this is over.

Anonymous's picture

I believe in Rosie but I also believe they will keep fudging these numbers forever to trick the average dumbass american that things are better somewhere in the country, just not in your neighbourhood.

zeropointfield's picture
zeropointfield (not verified) Aug 7, 2009 1:01 PM

sure. once you start such a thing, you cannot just stop. they have to do it to the bitter end.

Anonymous's picture

Question -

There was no S&P 500 in the Great Depression.

Does anyone know what Rosie is referring to in his graphs?

TheDreadPirateRoberts's picture

There are two things you can look at. One is the DJIA, which I believe will show the same general pattern. Two, the SPX has been 'historically reconstructed' by S&P by backward chaining it to the S&P 90, a predecessor index which did exist at the time. I believe SPX came about in 1957. So, it's not perfect, but it gives you the flavor.

Anonymous's picture

That is sort-of cherry picking the data to conform to one's hypothesis. Look at the troughs in 66, 70, 75, 82, 87, 90, 98 -- the "reflexive rebound" led to new highs.

Cheeky Bastard's picture

you must be either new or a 12 yo kid to think that those recession have any similarities with this depression ...

Anonymous's picture

The back-to-back recessions in the early 1980s were similar to today's recession. Unemployment was over 10% for 4 years (and that's using the fake numbers that are rosier than reality). There was an S&L mess due to bad lending practices and loose regs. True, inflation was in the double digits, unlike now, but that was not a good thing, especially if you were unemployed.

Cheeky Bastard's picture

yes in the early 80s, but that recession was a inventory recession, not a credit one + there was no where near the amount of leverage like in this one, industrial base was still there to get us out + you had banking regulation in place, you had non-computerized exchanges and statistics was counted in a different manner ... people should really understand that this depression is something new, unpredictable and no one knows how will it behave as a system ...

Anonymous's picture

You seem to be remembering some other period.

Deregulation was one of the big things that led to the S&L crisis back then. And FSLIC was understaffed so the few regs in place weren't enforced. (Sound familiar?) Also, the industrial base was shrinking rapidly. The big move to a service economy was already underway and was a big contributer to the high unemployment rate. There were no industrial jobs being created, they were rapidly disappearing. The stats were different but they're always changing those. The big changes in the way unemployment, etc. is calculated had already been made because they needed to fudge the numbers so things didn't look as bad as they were.

Every recession is new. Are you suggesting that there is no point in looking at history?

Cheeky Bastard's picture

the industrial base was at least 50% stronger than it is today; and you really can not compare S&L crisis with what happened here. I agree that there is a reason to look into past recession for some similarities, but there is no point in full comparison between recession X and recession Y. It makes no sense, those are both chaotic patterns and can not be matched or repeated because the circumstances were different. Also I agree that there were no industrial jobs being created, but the labor force was smaller and the percentage of the industrial jobs was higher than it is today. Today even the number of those employed in manufacturing is smaller than the number of those that were employed in manufacturing during the 80s. The problem is that the 80s were financially simple times, and 2000s, with all the de-regulation which was set up in the New Deal, are a complex system of interlocking actions and reactions; it is simply unpredictable. Plus in the 80s you didn't have underwater mortgages, or negative equity on your home, the derivatives were no where near as important as they are today, and are hidden from the masses like some nuclear time bomb . Again, i know that every recession is new because the system from which emerges is far more complex than the the system from which the previous recession has emerged, but what we have here is a quantum leap in complexity and I'm pretty sure even those who are on top of all this have no fucking clue what is  happening, and that is visible from their actions; transforming the economy from main street to wall street because it is far more easy to manipulate that market and give an illusion of improvement ..

Anonymous's picture

Cheeky, I'd venture to say that your ancestors were making the same exact argument you are back in the day. If you haven't, you should read Kindleberger for some perspective. I do think there's some merit to your point, but the larger structure of these bubbles/bursts/manias/panics are always the same.
I enjoy following the salient, coherent discussions like this that still occasionally pop up on ZH. Reminds me more of the .blogspot days...


Cheeky Bastard's picture

thank you for your book recommendation, i have just DL it.

And i would like to add, that my comments were a bit sloppy, i was primarily thinking of econometric comparison of the recession X to recessions Y,Z,E,G etc, not how they are formed etc. i fully agree that there are joint parameters which contribute to forming bubbles, recessions and depression, there is no denial about that; but, again, what my problem is, especially with charting comparison is the presupposition that the recession X must follow some pattern, and that comparing the full cycle of recession Y to the time passed in recession X will give us a clear picture about the systemic behavior of recession X. i believed it is flawed, and not economically usable, unless we are using averages gathered from the econometric observation of previous recessions, and i don't think that is useful because that kind of method smooths the volatility of intra-circular behavior of a recession we use as a basis of our comparison.

Anonymous's picture

I certainly understand your point and I definitely agree that when training a microscope on specific timeframes and/or events of one downturn compared to another, we're going potentially lose much of the correlation we (thought(?) we) had initially.
To site a very recent example that I presume many ZH readers can relate to: what are your thoughts on Peter Borish's data from 'Trader' showing the insane correlation between 1929 and 1987? Was it just coincedence? A self fulfilling prophecy?
He was off by a few months with respect to his prediction of the actual slide but it was pretty close. Also, at that time, a lot of blame was put on 'program trading' being a culprit which wasn't available, in place and maybe not even thought of in '29.

I guess ultimately I have two points I'm trying to make based on my perspective of things:

1) I believe that every time there's been a situation like this, many people (active participants, by-standers, un-informed and otherwise) have viewed the event as being 'different', 'unlike anything' they've seen, 'much worse' than they've experienced, etc. Generationally speaking, none of us or those who experienced these before us have a whole lot of real-world reference to lean on. We've got the books and words of others who perceived the events a certain way, but beyond that it's difficult to truly understand and embrace how recession X and recession Y are acting similarly or differently

2) Regardless of the intricacies of how the market is reacting during the slide/bubble/burst or rise/mania, my feeling is that it is certainly helpful to try and understand it as much as possible but for the purpose of capitalizing on it. Sure, some of us may want to know how all the moving parts interrelate and become part of the whole so that it may be prevented in the future, but, if time/history is any reference for us my money is on this type of thing happening again...and again...and again...I hope to be able to take advantage of and leverage the opportunities that arise during this volatile time to be even more financially prepared for the next one.

Please keep in mind, this is just one person's perspective posted out here without any claim whatsoever of knowing more than the next guy.


Anonymous's picture

presumably ancient rome had it's own experiences with various forms of boom and bust.

then they hit a megaconvergence of cycles, which led to their fall.

are we there? it's too soon to tell, but we're clearly dealing with some pretty big cycles converging here- unprecedented leverage, a world awash in fiat, peak oil, population explosion, resource scarcity, peak food, increasing geopolitical complications, climate change, and nuclear proliferation to name a few.

while i agree that these things seem to follow a template, every time plays out 'the same but different'.

personally, i feel like i'm traveling back in time. 1st stop will be the 1970's. will we regress to the depression? 1907? 1873? 1863? only time will tell.

velobabe's picture

cheeky, i again want to reach out to you.

in a motherly sort of way.

you have much to prove†

Anonymous's picture

michigan gov needs billion to fund part supply no lending to wit antwhere else. gd

Anonymous's picture

So then what's the actual story? Is the labor market continuing to get worse? I can see the government massaging the numbers to make them look better, what US administration hasn't in a recession - but is the government somehow hiding 500,000 lost jobs from the public?

Miles Kendig's picture

More like 3,000,000 when consideration is given to those whose hours have been cut to part time but do not get reflected in the U3 or U6.

Gordon_Gekko's picture

More like millions.

ghostfaceinvestah's picture

I can't speak to the overall economy as a whole, but I am fully confident to speak to the housing and mortgage industries - they are going to be horrible in the fall.  The "turnaround" in housing is due almost entirely to the confluence of seasonal factors/buying season, the foreclosure moratoriums, Fed stomping down mortgage rates, and the FTHB tax credit.  Of those, only the FTHB tax credit is still in place (and due to expire in Nov, though it will, of course, be extended).

Being a three month moving average, the Case Shiller number released next month will show yet another increase in house prices, as the mix of REOs is decreased in the front month vs the back month, but in the actual market, the pain is going to resume, and the Case Shiller number will resume its decline by the Sept release.

As for the stock market, or the overall economy, who knows?  I just know that Bernanke's money printing is going to have to continue if he wants to hold down mortgage rates even at this level, there is very little bid for agency MBS outside the Fed.  That money will go somewhere, so staying long commodities seems like a good play to me.

steve from virginia's picture


Right ... the only number that matters is $70 a barrel.

Anonymous's picture

Steve, I hear you on this, but did you see the Wednesdays EIA report? I've have to assume that the fundamentals have GOT TO have an effect again at some point. My guess is most likely Oct/Nov when the Northeast heating season comes around again.
If things keep on the same pace they're on now, there'll be so much crude on hand we'll have to physically mop it up with worthless US dollars.

Miles Kendig's picture

Baghdad Bob now works for the BLS!  That is a contract employee from CNBC to assists the BLS with interpreting labor market variances.

Anonymous's picture

There is going to be one might dash for the exits, but like the Nasdaq bubble the mania could go on for a long time yet! And if the bubble is being blown up with the help of government spin and free money it could go seriously high before it blows up in a catastrophic way

Anonymous's picture

You hit the nail on the head, its being blown by govt (read Fed swap) money. And it could go alot higher, fundamentals be damned.

I would not want to be short here. On the other hand, I'm hesitant to jump into a market the fundamentals don't support.

Anonymous's picture

What's up with the divergence in technology?

SPX and INDU have printed fresh highs for the "new bull market" yet COMPX, NDX, and SOX (notably, SOX is down on the day) are still trading below the highs.

Tech more or less powered the rally thus far. No longer I guess. Hmmm..

kote's picture

The BLS guys must be former GE auditors.

perpetual-runner-up's picture

400,000 people dropped out of the in reality we are looking at -600k...

combine the dropping out of the workforce with the population control in the healthcare plan and we will be able to get our arms around this....

what people dont realize is that older people were never meant to collect on social security - it was a scam from the start to get money in the door - the average life expectancy was so low when it started....

Now the only way the dems feel we can deal with the long term cost of social security and medicare is to start letting the older population die out....when you stop contributing, you are gone....literally...

after they get the healthcare plan passed AARP is going to realized it was used because they are going to raise the collection age for social security...

Anonymous's picture

So they get a nice headline number on the back of that and call it a green shoot!!

What a complete joke

Neophiliac's picture

The first line is not accurate. Where that number comes in is in the unemployment rate. These people have not lost jobs now: they lost their jobs some time ago and just gave up on looking.

TD used to have a good habit of posting broader unemployment rate.

Anonymous's picture

There are going to be a lot of people eating crow some time in the next 6 months. Right now too many vested interests are in denial of reality and using the government's ( our) money to try to maintain the status quo.

trillion_dollar_deficit's picture

Agreed. But, let them have their fun. It may be the last bit of fun anyone has for a long time. You cannot backstop a $14 trillion economy and run trillion dollar deficits without serious implications down the road. There is no free lunch.

Anonymous's picture

The valuation of the S&P is at nosebleed levels based on earnings, or rather lack of them but as long as they beat low bar estimates they mugs are willing to pay through the nose for them.
The scam will keep going as long as there is another fool to sell to, when the next fool wakes up and sees the market for what it is and doesn't buy.....

Commissionable's picture

TD, your insight is very interesting, I will have a multitude of respect for your recent blogs when we see that 3rd stage you speak of, and we dont launch to 10,500 DJIA and 1200 S&p

Neophiliac's picture

A job is a job. Census, auto-workers - whatever: we should take what we can get now. The growth in the auto industry may not recur, but then we might have similarly non-recurring growth in non-residential construction spending due to what TD and Rosie would call 'distortive government stimulus spending'. This is all cherry-picking.


I say, take the numbers as they are. There are always problems in how the numbers are tabulated and there is always some non-recurring data point out there. Still there is no need to search for hidden problems (which makes this blog look a bit like it's trying too hard to find problems in this economy,and when you try to hard, you tend to undermine the whole message). The problems are staring us in the face. Specifically: where the hell is the fuel for the recovery is suppose to come from? It won't be from the 400,000 discouraged workers who just left the workforce, that's for sure. Nor will the economy grow thanks to falling incomes.

Gordon_Gekko's picture

Whoever gives a s--t anymore what the report says?

Anonymous's picture

As more time passes, more people will care about the fundamentals as they will be living them each day. That is a prediction which I feel very confident making. If you have a job right now, be very grateful. I don't give a rats ass what tripe the BLS trots out about UE, Employment, the job markets. I get to experience the truth each day and . . . it sucks. Cheers!

Anonymous's picture

One worry I have is that the sheer size of the financial services sector relative to the whole economy is further severing any connection to physical fundamentals. With so many livelihoods depending on moving money from one account to another, how can the market not do anything but go blindly up at this point? You have alluded to this "panic buying" several times recently.

Although, on the flip side, the "fundamental drawn-out downtrend" could represent the de-financialization of the economy to a certain extent when these guys get wiped out one way or another.

Any idea about % of economy that is financial services now compared to 2000-2003 and 1929-1930?

US stock indices no longer represent an economy- they ARE the economy. A genuine recovery could very well be when stock markets are no longer looked as as a measure of economic recovery.

Anonymous's picture

And ironically, they're all insolvent.

Gordon_Gekko's picture

"US stock indices no longer represent an economy- they ARE the economy."

Sure, but only imaginary one. The stock market no longer represents ANYTHING happening in the REAL economy/world. The disconnect between the stock market and reality will only become apparent to the majority when DJIA is at 1,000,000 yet the food shelves in all the stores are empty. Welcome to the United States of Zimbabwe.

Anonymous's picture

A quarter of a million people are no longer working! YAAAAAAAAY! Companies must be worth more!