Okun's Brokun... Or Why Someone Is Lying

Tyler Durden's picture

For those who wish to get straight to the punchline, and why we ask if someone is openly lying, here it is:

For those who want some background color, read on.

A year and a half ago, we asked a simple question: "Is Okun's Law The Latest Casualty Of Central Planning." For those unfamiliar, and to paraphrase what we said in February 2012, "Okun's rule-of-thumb relates the long-term empirical finding that a country's unemployment rate is closely related to a country's output (or GDP). To be a little more explicit, it is the change in unemployment that is more notable in its relationship to the potential GDP (the output gap). Okun's original work noted that a 3% increase in output corresponds to a 1% decline in unemployment rates (and/or rise in labor force participation, rise in hours worked, and rise in labor productivity)."

Several months later, none other than Jon Hilsenrath, who back then wasn't quite as busy with paraphrasing every word uttered by various FOMC central planners for the benefit of Getco's vacuum tubes, explaining to the market why it is so wrong and the Fed never intended for the epic bear flattener to take place in the process crucifying all bond managers (see today's Bill Gross letter), and why things are really much better in the Princetonian ivory tower than in reality, followed up on our observations with his own question: "How can an economy that is growing so slowly produce such big declines in unemployment?"

Something about the U.S. economy isn't adding up. At 8.3%, the unemployment rate has fallen 0.7 percentage point from a year earlier and is down 1.7 percentage points from a peak of 10% in October 2009. Many other measures of the job market are improving. Companies have expanded payrolls by more than 200,000 a month for the past three months, according to Labor Department data. And the number of people filing claims for government unemployment benefits has fallen. Yet the economy is barely growing. Many economists in the past few weeks have again reduced their estimates of growth. The economy by many estimates is on track to grow at an annual rate of less than 2% in the first three months of 2012. The economy expanded just 1.7% last year. And since the final months of 2009, when unemployment peaked, the economy has expanded at a pretty paltry 2.5% annual rate."

How ironic then that one year later, $700 billion more in debt monetized by the Fed, the stock market just shy of all time highs, the US economy grew by essentially the same annualized amount and at the lowest year over year growth rate since 2010, even though the unemployment rate, supposedly, keeps dropping. 

Of course, back then inquiring about the validity of Okun's Law was all the rage (if only for a few weeks) as there was some hope it may normalize. It didn't, and after the spring of 2012, the topic wasn't breached by anyone again for fears of the embarrassment Bernanke could suffer if someone asked him what is going on with Okun's law at one of the quarterly media press conferences.

At least, it wasn't until now, when we were happy to see at least one other commentator raise some red flags surrounding the ongoing collapse in all traditional economic relationships.

In "When Numbers Don't Add Up", Bloomberg's Caroline Baum catches up with Zero Hedge circa February 2012, and observes that:

Just because economics relies on numbers doesn't make it a mathematical science. For example, gross domestic income -- the costs incurred and income earned in the production of the nation's output -- should equal gross domestic product. It doesn't. Ever. The Bureau of Economic Analysis adds up the two columns, draws a line and reconciles them with the notation, "statistical discrepancy."


Sometimes there are anomalies within GDP. BEA's third guess at first-quarter GDP was a lot weaker than growth implied by labor inputs (employment and hours worked). Real GDP growth was revised from 2.4 percent to 1.8 percent -- one-fourth of last quarter's output gone in a flash! The major source of the adjustment was to real consumer spending on services, which was slashed to 1.7 percent from 3.1 percent, based on new data from the Census Bureau's Quarterly Services Survey. The QSS, which gathers revenue from the sales of a wide range of services, is a relatively new addition to the BEA's statistical library.

She then references two economists who are desperate to explain what is going on without admitting what we said nearly two years ago: that central-planning has broken the economy in virtually every possible way.

Joe Carson, head of global economic research at AllianceBernstein LP, was quick to point out (to BEA, too) the inconsistency between reported GDP and output implied by an alternative method of calculation: using the sum of aggregate hours worked (the number of employees times the number of hours) and productivity.


"Hours worked in the private service sector is growing faster than output, which would imply a decline in productivity," Carson said. "If that were true, firms would be shedding workers rather than hiring."


Neil Dutta, Head of Economics at Renaissance Macro Research, had trouble with the math as well. Private hours worked for the overall economy rose 3.6 percent and productivity increased 0.5 percent in the first quarter, implying a 4.1 percent increase in GDP.


Could the Labor Department have overestimated employment and hours? "It's hard to see why," given solid growth in individual withholding and corporate taxes reported by the Treasury, he says. Tax data tend to be reliable because people don't withhold taxes, and corporations don't pay taxes on income they didn't earn. (Sometimes they don't pay it on earned income either.)


That leaves productivity growth, which is a derived number: output divided by hours worked. Mathematically, it has to be revised down with GDP. "Whether that's an accurate reflection, given strong tax receipts and hours, is the question," Carson says.

In other words, something is way off: either the unemployment data is very much wrong and the real unemployment rate is far higher especially when normalized for the collapsing labor participation rate and the surge in part-time and temp workers, or the GDP calculation is incorrect and the economy is growing at a 4%+ rate. (It isn't). The scarier implication is that in addition to all other seasonally adjusted economic data points which have become painfully unreliable, daily Treasury tax receipts must also now be added to the docket of meaningless and corrupt data points. The question of just how the Treasury could explain a massive (and deficit boosting) cash discrepancy could only be answered if somehow the Fed is found to be parking cash directly into the Treasury's secret basement.

But that would be very illegal...

Obviously, the US economy is not growing at a 4% pace, although following next month's wholesale revision of the GDP calculation which will include the benefit of intangibles, we wouldn't be surprised if the BEA and BLS push the country's entire economic reporting apparatus fully and entirely into wonderland, and absolutely every economic number is no longer accurate, relevant or unmanipulated.

In the meantime, and while we still have at least one apples to apples economic data set, here is the record spread between the annual growth rate in GDP and the annual drop in unemployment.

The chart needs no explanation.

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francis_sawyer's picture

Okun's Broken... There is only the Bernank...


Before you junk that ~ get yourself a crayon & color in the main DIVERGENCE areas... Especially AFTER QE2...

Beam Me Up Scotty's picture

Graphs and charts are meaningless now, because the data is all pencil whipped anyway.  In other words, they are LYING.

ZerOhead's picture

"When it becomes serious, you have to lie,..."

~ Jean-Claude Juncker


I guess things must be getting serious then...

James_Cole's picture

Economics isn't a real science, there are no 'laws.' The whole thing is made up (including the economy itself being a human construct - not a law abiding force of natural) which is why Okun's law is like reading tea leaves. 


^ Bernanke - economist - on this topic

Notably, an examination of recent deviations from Okun's law suggests that the recent decline in the unemployment rate may reflect, at least in part, a reversal of the unusually large layoffs that occurred during late 2008 and over 2009.  To the extent that this reversal has been completed, further significant improvements in the unemployment rate will likely require a more-rapid expansion of production and demand from consumers and businesses, a process that can be supported by continued accommodative policies.

eatthebanksters's picture

Does Okun's Law reflect the technology factor in the equation.  As technology advances so does productivity, even with a loss of jobs.  GDP can grow with loss of jobs in an environment where effeciencies through technology rapidly drive productivity..  I entered the world of scalable technology about 20 months ago...all I can say is that if anyone has a job that is based on logical processes and lmited thinking, in time you will be replaced.  Athletes, specialists, highly educated people, will keep their job as will manual laborers (in the latter onlly as long as their costs to perform are less than the cost to develop a machine to replace them).  Middle and lower management jobs are disappearing as are high paid union jobs.  The free market cannot be denied.  People have choices and need to be thoughtful as to the consequences of those choices going forward.  The job market is forever changed. We have an abundance of jobs in the tech world, so many that we cannot fill them with our home grown social sicence and art history majors so we recruit overseas.  The world is vastly different than it was even 20 years ago, and it will never go back.  Technology has also created a huge rift in our class structure.  Jobs that cannot be replaced by technology will be fewer and higher paying.  All others will create competition and drive wages down.  Just like we orbit the sun this is a law of nature that cannot be changed with government intervention and central planning.



Beam Me Up Scotty's picture

"The free market cannot be denied"

You said "free market".......LOL!!

We haven't had anything remotely close to a "free market" for a long time.  And even less so since Obama has taken office.  He thinks jobs are created by the government.  You can give a turd counter a job and a paycheck, but you have to take the money from someone else to give him that job.  And we have a severe overabundance of turd counters in our government.

espirit's picture

We'll continue to see the unemployment numbers drop until everyone is employed by .gov, or receiving sustenance benefits.

Forward Soviet!   ...or Meh, another day in the Matrix.

Greyhat's picture

Yes,  "Hours worked in the private service sector is growing faster than output, which would imply a decline in productivity," just means more private cyberwar contractors desperatly waiting for a cyberwar. :)

dunce's picture

"Continued accomodative policies", more QE, surprise, surprise!

      Gomer Pyle.

rex-lacrymarum's picture

Economics is indeed a science and there are economic laws. The problem is that modern mainstream macro-economic theorizing assumes it to be akin to a natural science like physics, that can deliver proofs by means of studing emprical data (a.k.a. 'economic statistics'), this is to say the data of economic history. However, this is not how it works and is the main reason why most economists nowadays cannot forecast their way out of a paper bag and have rarely anything relevant to say about economics. Economic science is a social science, the best elaborated branch of praxeology, or the science of human action. Its laws are derived by logical deduction and ratiocination and can neither be confirmed nor refuted by empirical data. Economic history is as the term implies a field of study for historians, not economists. Of course such historians should be aware of the tenets of economic theory if they want to interpret the events of economic history correctly. But history is not the same as a reproducible experiment that can tell us anything about economic laws. Human beings are not inanimate rocks, they act with purpose and volition. Economic theory and the laws derived from it can tell us if the means chosen to pursue economic ends are likely to succeed in achieving said ends or not. 

drchris's picture

Unemployment rate without participation rate is meaningless. Unemployment rate tells you what % of the "workforce" is employed. The participation rate defines "workforce". The two numbers CAN NOT be analyzed separately. 

Pool Shark's picture



Exactly, drchris.

These two charts explain it all:



Now get back there and push my wagon; I want to go faster...


rosiescenario's picture

....the degree of severity = the measure of divergence, using Lazlo's ruler.....with mm calibration chosen.

Triple A's picture

The whole economy is broken, this is not going to be a slow collapse when it happens. It is going to be just like 08, when they had to come out and say were completely fucked and if we don't steal all your money the world is going to end. Like Peter schiff says, Bernank and the fed arent the training wheels, They are the only wheels. 

fockewulf190's picture

It has to be the stealth GDP contribution being created by the millions of people operating within the illegal work force that is throwing all the stats out of whack. And the weather...don't forget the damn weather! /sarc

golfrattt's picture

Unemployment percentages don't differentiate between full and part-time jobs...


A natuion of Full-time workers @ rate of 7.6% unemployment will produce a hell of alot higher GDP number that a nation of part-timers @ the same number...


Which is what we have...

NidStyles's picture

U-3 does differentiate, which is also the figure most of the MSM uses to report unemployment figures.

Bunga Bunga's picture
U.S. bugged EU offices, computer networks


Looks like European Union got on the list of terrorist organizations.

bank guy in Brussels's picture

Article pointing out how, from the earlier NSA whistleblowers before Snowden, it was clear that a main function of NSA is to gather blackmail material against US political figures, judges, and so on, to either extort them or threaten to kill them, or to help actually murder them.

The whistleblowers before Snowden actually painted a worse picture of what was happening, than Snowden himself.

We can assume everyone in US Fed, Treasury, statistics offices etc has an NSA file ready to blackmail them, or worse, to create all this fakery about the US economy.

The NSA material was likely used for death threats against US House Judiciary Committee Chairman John Conyers ... smears were gathered to imprison Conyers' wife, to make sure Conyers backed down from seeking impeachments of corrupt US judges serving the oligarchs. Conyers was reminded of how they murdered other Congressmen, particularly Sonny Bono on the same Committee.

We have, in 50 years: 2 US Presidents shot (JFK, Reagan), 2 killed US Senators (Paul Wellstone, John Tower), 5 killed US Congressmen (Hale Boggs, Nick Begich, Larry McDonald, Sonny Bono, Wayne Owens), 1 killed US Governor (Mel Carnahan), 1 killed CIA director (William Colby), 1 killed Federal Judge (John Roll).

Enough dead to threaten all US leaders in all 3 branches of government, right to the top.


ZerOhead's picture

Worse yet, Tice’s revelations raise even more troubling issues. Tice and his NSA whistleblower colleagues revealed that the NSA’s massive, illegal spy-on-Americans program began in February, 2001 – seven months BEFORE the 9/11 attacks! As Andrew Harris reported for Bloomberg in July, 2006:

“The US National Security Agency asked AT&T Inc. to help it set up a domestic call monitoring site seven months before the Sept. 11, 2001 attacks, lawyers claimed June 23 in court papers filed in New York federal court… ‘The Bush Administration asserted this became necessary after 9/11,’ plaintiff’s lawyer Carl Mayer said in a telephone interview. ‘This undermines that assertion.”’

Totentänzerlied's picture

‘The Bush Administration asserted this became necessary after 9/11,’ plaintiff’s lawyer Carl Mayer said in a telephone interview. ‘This undermines that assertion.”’

All they said was that it "became necessary after 9/11" - as in, before that, it was, ya know, just for kicks.

franzpick's picture

Your personal data and history can be used to stop your life, family and career the very next day after you wander off the NSA/federal/corporate reservation.  On the afternoon of Dec. 8th 2008 I posted on CRisk that IL governor Blagojevich had made a potentially lethal mistake in announcing the state's termination of business with B of A, that he had politicized the failing credit situation, and that targeting B of A had potentially disastrous consequences for him. I was astounded with the rapidity with which he was silenced publicly on TV the very next day (by an enraged IL northern district attorney Patrick J. Fitzgerald) with the charge of mail fraud and soliciting bribes.

NSA, other spy agencies, the administration and its politicized agency cabals have everything they need on you to ruin or buy you in a moments notice upon your first political transgression, whether you are Rod Blagojevich, David Petreaus, John Roberts, or one of many others jailed, silenced or intimidated:

Dec. 8, 2008: "Blagojevich threatened to stop the state’s dealings with Bank of America Corp. over a shut-down factory in Chicago. On December 8, 2008, all state agencies were ordered to stop conducting business with Bank of America to pressure the company to make the loans. Blagojevich said the biggest U.S. retail bank would not get any more state business unless it restored credit to Republic Windows and Doors." WIKIPEDIA

Dec. 9, 2008: "The case gained widespread attention with the simultaneous arrests of Blagojevich and his chief of staff, John Harris, on December 9, 2008, at their homes by federal agents.[8][9] Blagojevich and Harris were each charged with one count of conspiracy to commit mail and wire fraud and one count of soliciting bribes."  WIKIPEDIA

Elected leaders, congress members, agency authorities and judges knowing for some years, as messenger Snowden has revealed, that their entire histories are readily at hand to be suddenly used to end their careers or alter their decisions, will remain locked in collusive, corrupt, non-representative civic suppression. perhaps until some ultimate public outrage results in a non-voting overthrow of their oppressive system.

ZerOhead's picture

Keep a close eye on your enemies...

Keep an even closer eye and a loaded shotgun on your friends...


~ Dick Cheney

Al Gorerhythm's picture

With friends like his........

JimmyRainbow's picture

wonder if they have cisco switches.

ecb has hirschmann which noone uses outside europe

Bunga Bunga's picture

The term "maintenance account" gets a whole new meaning.

Non Passaran's picture

Good, there is at least one instance of all that gear used to correctly identify a terrorist group!
Hope they'll post drone job ads here if they need people wiling to help with the hunt on the Red Commission.

andrewp111's picture

We already know the participation rate has been declining rapidly, and Obamacare is crushing employment in the same way an increase in the minimum wage would. ZIRP is very distorting as well. There is no mystery here. You can't expect continuity with the past when underlying conditions have changed.

Landrew's picture

Wow how wrong you are, Obamacare main parts are not in service yet. Most of what is in place was already mandated by States. This is beyond our thoughts of what our government was. This isn't Dummycrat or Republican't. This is .1% against the rest of us.

Totentänzerlied's picture

"This isn't Dummycrat or Republican't. This is .1% against the rest of us."

Okay smartass, just who do you think actually designed Obamacare?

Tick tock, we're waiting...

JohnnyBriefcase's picture

Umm, probably the people who profit most from it like the insurance/pharmaceutical companies?

oklaboy's picture

How dare you be critical of the BOL/BLS....you must be racist

Beam Me Up Scotty's picture

Not just racist, you are a terrorist racist.  Or a racist terrorist.

James-Morrison's picture

And where are the drones 
Send in the drones 
Don't bother, they're here.

HowardBeale's picture

"Not just racist, you are a terrorist racist.  Or a racist terrorist."


I think "fucking" goes in there somewhere.

Midasking's picture

It is all lies.  The economy isn't growing at all and it is about to get worse.  Borrowing and spending will Never produce a true recovery.  We need to save and invest but to get to that point would mean mass layoffs and a severe depression liquidating the debt.. which is politically unacceptable. So look for more spending, more QE, more economists justifying the growth in government.  It is all BS. http://tinyurl.com/pp588mj

espirit's picture

You must have just taken the red pill, of course the Matrix is all lies.

Stuck on Zero's picture

This is clearly a case of Maxwell's Demon at work.


Quinvarius's picture

Of course the Fed has begun just giving money to the government.  They would not be saying anything about taper if they had not already moved on to super QE5 in stealth backup plan.  The Fed has no choice but to continue giving free money to the government and the bankers, whether they admit it or not.  And in the end, they are just going to completely lie about everything as they are forced to print more and more.

When ever some idiot on TV says QE is going to end, just say "prove it".  It is an impossibility for our government and banking system to function without trillions a year in printed money.

Bay of Pigs's picture

Kind of like the BlowHorn crowd talking about gold. They can't "prove" that anyone is selling phyical gold. It's all paper humping bullshit (GLD) and smoke and mirrors. CB's are hoarding and stockpiling physical gold, not selling it.

The coming reset in PM's is going to be epic. Jaw dropping in fact.

1100-TACTICAL-12's picture

My question is how long till it blows, it's like watchin paint dry.

boooyaaaah's picture

""says QE is going to end, just say "prove it".  It is an impossibility for our government and banking system to function without trillions a year in printed money.""

Once Upon A Time

Taxpayers were respected and courted by pols. They needed the money

Now they only need free money

And they use it to buy votes

The taxpayer wonders "gang of eight" " "invade Iraq?" " invade Syria" "arab Spring"

Money comes off trees you stupid taxpayer



Flakmeister's picture

Why would an empirical relationship established in the non ZIRP era then extrapolated into ZIRP environment have any predictive value?

It is like trying to use Newtonian Gravity to understand a Black Hole, however, it dignifies economics too much to use that comparison....

Landrew's picture

Bravo! This is so beyond what anyone knows. This is an experiment without the science or logic.

caimen garou's picture

when anyone says a number and " according to the labor department," you know crap is floating! they don't make hip boots or chest waders well enough to keep the shit out!

MsCreant's picture

I thought that was a Baby Ruth bar floating in there, ya don't say...