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Is The BLS Overstating Jobs?

Submitted by Tyler Durden on 01/27/2015 19:20 -0400

Submitted by Lance Roberts via STA Wealth Management,

This morning there is a litany of articles on employment growth since the end of the last recession. (See here, here and here for examples) Of course, much of the debate centers on which side of the political spectrum you fall on. Staunchly Democratic pundits continue to point at the Bureau of Labor Statistics (BLS) employment data, particularly the unemployment rate, as clear evidence that the economic recovery is in full swing. Conservatives will direct your attention to the labor force participation rates and lack of wage growth that it is not.

However, the one thing that all the debate has in common is the use of that singular employment data set published monthly by the BLS. The employment data is some of the most highly anticipated, and hotly contested, economic data in both the financial and political arenas. Yet, no one questions the validity of the data which is collected once a month via a survey of about 60,000 eligible households. After the data is collected by the interviewers it is then compiled into a report that is subsequently somewhat tortured by seasonal and birth/death adjustments.

The chart below shows the annual net change of employment as reported by the BLS going back to 1988.

While it is clear that employment has recovered sharply from the 2009 recession lows, the question remains as to whether it accurately reflects the real employment situation in the country today.

As I stated above, the arguments about labor force participation are varied. Some suggest that the rate is low because of the retirement of "baby boomers" while other suggest that it is a function of the real economy. One way to look at labor force participation is to analyze the group of individuals that "should" be primarily employed which are those between the ages of 16 and 54 that are NOT institutionalized, disabled or otherwise unable to work. Currently, the labor force participation rate of that age group is roughly 46%.

Yes, there are many in that age group that have chosen not to work to raise a family or go back to school, but it is hard to suggest that those individuals make up more than half of the group.

So, this does bring up the obvious question.

"IF the labor force participation rate of the primary working age group is not rising, then where is the "strongest gains in employment since the 1990's" coming from?"

My friend Doug Short has a partial answer to this question.

"I'll close this analysis with a chart that essentially demolishes the prevailing view of our aging population as a demographic drag on labor supply. Here is the ratio of the 65-and-over cohort as a percent of the employed civilian population all the way back to 1948, the earliest year of BLS employment data. Mind you ... these people are not only in the workforce, but also actually employed."

"The percentage of elderly employment is hovering at its historic high -- now double its low in the mid-1980s. This is a trend with multiple root causes, most notably longer lifespans, the decline in private sector pensions and frequent cases of insufficient financial planning. Another major cause, I would argue, is the often surprising discovery by many of the elderly that the "golden years of retirement" might be less personally satisfying than productive employment. Note that the growth acceleration began in the late 1990s, prior to the last two business cycle downturns (aka "recessions")."

However, that does not completely resolve the issue of the disparity between reported employment and the large number of individuals sitting outside the labor force. The answer likely resides in the BLS's employment calculation process and the subsequent adjustments that may potentially be overstating employment gains.

The most questionable of those adjustments is the birth/death model which is a monthly guess at the addition and subtraction of businesses to the economy. Recently, the CEO & Chairman of Gallup, a non-government related surveying entity, recently took the BLS to task on the measure stating:

"We are behind in starting new firms per capita, and this is our single most serious economic problem. Yet it seems like a secret. You never see it mentioned in the media, nor hear from a politician that, for the first time in 35 years, American business deaths now outnumber business births.

The U.S. Census Bureau reports that the total number of new business startups and business closures per year -- the birth and death rates of American companies -- have crossed for the first time since the measurement began. I am referring to employer businesses, those with one or more employees, the real engines of economic growth. Four hundred thousand new businesses are being born annually nationwide, while 470,000 per year are dying."

This is an extremely important point as it suggests that employment, as presented by the BLS, has been significantly overstated over the past six years. If we take the differential as stated by Gallup and compare that to the annual birth/death adjustment used by the BLS we find that jobs have been overstated by 3,678,000 or more than 613,000 annually.

How does this compare to the cumulative number of jobs as reported by the BLS since 2009? It is quite substantial.

If we assume that Gallup is correct in its assessment, this goes a long way in explaining the existing slack in the labor force and lack of wage growth. However, Jim summed it up best by when he stated:

"My hunch is that no one talks about the birth and death rates of American business because Wall Street and the White House, no matter which party occupies the latter, are two gigantic institutions of persuasion. The White House needs to keep you in the game because their political party needs your vote. Wall Street needs the stock market to boom, even if that boom is fueled by illusion. So both tell us, 'The economy is coming back.'

Let's get one thing clear: This economy is never truly coming back unless we reverse the birth and death trends of American businesses."

Is the BLS overstating employment growth? I guess it depends on whose data set you choose to believe. However, there is little denying the fact that with over 60% of the population living paycheck-to-paycheck, stagnant wage growth and declining net worth over the last five years, there is something that simply does not add up. If employment growth were indeed growing as strongly as in the late 90's, it would seem logical to expect that many of the disparities in the economic landscape should be starting to equalize somewhat. Unfortunately, that has yet to be the case.

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Tue, 01/27/2015 - 19:23 | 5713382 pods

I'd have a 12 inch wanger if the BLS measured it.

pods

Tue, 01/27/2015 - 19:25 | 5713396 zorba THE GREEK

BLS....They put the L in the middle to misslead you.

Tue, 01/27/2015 - 19:54 | 5713514 NoDebt

If you just ate an entire generation of your own children, would you tell the truth about it? Didn't think so. Neither will they.

What really scares the shit out of them is once you've done that you've wiped out those you were depending on to pay the tab for all the SS and other benefits for the older generation. The slightest whiff of "there's nobody left to carry the water" and the AARP and other senior groups will have kittens. Political careers will end. And that can not be allowed to happen. Ever.

Tue, 01/27/2015 - 20:04 | 5713559 PirateOfBaltimore

Just one generation? I'm 27 and fully assume that both myself and my potential progeny are utterly fucked.

Tue, 01/27/2015 - 21:10 | 5713839 sheikurbootie

I know several millennials with highly technical education/training and several years of experience. One of them (28 years old) told yesterday that his company and competing companies are having a massive layoff of up to 25%. He's associated with the oil industry, but not directly employed by an oil company.

It just keeps coming for millennials. The older and most senior avoid the cuts while the younger/new guys get fucked. It's devastating to have to recover from a layoff nearing your peak earning years. I have some other millennial friends (mid-20's) that still can't get the first break at a career job. Before you know it they'll be 40 wandering what the fuck happened.

The economy is fucked and the BLS is lying. It serves no purpose and the only ones that believe this shit are government employees and retirees that watch the news.

Tue, 01/27/2015 - 22:42 | 5714210 Spigot

Looking at this from a different perspective:

1) If you can't "get a decent job" or your labor returns far less than a living wage, then you are better off being self employeed.

2) In the larger sense the current idea of "employment" by others (a job) and the ongoing dismal "job market" indicate that current businesses and ways of doing business are slowly decaying. Recognizing the trend and moving away from a disintegrating business model are exceptionally important for our long term prosperity.

3) In 1900 90% of people in the US worked for themselves.

4) In 2000 90% or people worked for someone else.

5) This trend of being "employed" vs "employing self" has now reversed. Trend = Friend. Find a way to surf this trend. Take command of your destiny.

6) Network with those who see the same thing and start making the next thing with them...loosely coupled networks of self employed people who work collectively on projects when needed, who can move and adjust with the market rapidly, who are not tied down to old ways of doing things, etc.

7) Use your strengths and the old systems' weaknesses to further your cause.

Wed, 01/28/2015 - 03:07 | 5714815 Villageidiot777

Laws, regulations, taxes, fees in 1900 versus 2000.

Tue, 01/27/2015 - 20:31 | 5713659 waterwitch

The 'L' is for 'length' as in shLong.

Tue, 01/27/2015 - 22:23 | 5714172 TheMerryPrankster

Bullshit

Lies &

Stories

BLS- try to think of it as light entertainment, sort of "The Office" of government agencies.

True unemployment is around 20%, most of the people we've added at work tell me they've been out of work 6months to a year before they got hired. That's greater Atlanta metro area, where the economy is supposed to be "good". I hate to think what its like in the slow areas...

Wed, 01/28/2015 - 08:35 | 5715147 asteroids

The numbers are useless. The census tells us how many are of working age. The Treasurey, in more or less real time, tells us how many are working, how many hours, and what they make. You don't need the BLS at all. Abolish it.

Wed, 01/28/2015 - 08:59 | 5715212 Refuse-Resist

As a resident in one of those slow areas I can tell you what' it's like:

Gov, healthcare and edu at full employment, high wages, and flaunting it. Everybody else scraping by on .gov assistance or by working multiple part time jobs for national chains like Walmart, Mcdonalds, etc. Even my friend's high school senior can't get more than 28 hours per week at burger king.

His economic plan> Join the USMC and GTFO of here. Sadly that may be his best option.

I think Michael Moore correctly called it, in Farenheight 9/11: The economic draft.

It's going on here big time. The ROTC at the local HS is bigger than the football team and band put together.

My HS didn't even have ROTC. My how times have changed.

Tue, 01/27/2015 - 19:32 | 5713416 Keltner Channel Surf

Imagine the seasonal adjustment they'd assault your foot-longer with during the colder months.

Tue, 01/27/2015 - 20:10 | 5713577 Ness.

#Shrinkage

Tue, 01/27/2015 - 20:19 | 5713612 Keltner Channel Surf

Like the impact of viewing something unappealing ("We Rosanne Barr-ed some folks")

Tue, 01/27/2015 - 19:32 | 5713424 1stepcloser

and thanks for that visual. The BLS measuring your huge 3 inch cock

Tue, 01/27/2015 - 21:43 | 5713999 pods

lol

Well I could measure a NYC blizzard.

#goodenough

Wed, 01/28/2015 - 08:59 | 5715217 Refuse-Resist

I went fishing yesterday and I caught a fish "THIS BIG". But he got away.

Tue, 01/27/2015 - 19:23 | 5713386 angel_of_joy

BLS = Bull Laughable Shit

Tue, 01/27/2015 - 19:29 | 5713420 Be_Optimistic

But Obama said the economy was never stronger?

Tue, 01/27/2015 - 19:40 | 5713462 saints51

So does every single president. Party affiliation makes you think you're free and have control.

Tue, 01/27/2015 - 19:50 | 5713504 NoDebt

And Bush said "the state of our economy is strong" shortly before the wheels came off.

What the fuck would a president know about the economy anyway? And if he did know do you think he'd ever tell you the truth? "We're so collossally fucked you have no idea what's coming down the tracks at us" are not words Presidents want to be quoted saying.

Tue, 01/27/2015 - 20:21 | 5713616 highly debtful

Ha! That's what you get when your country is run by Americans. At least here in the EU wisdom and common sense always prevail. Fortunately for us, our venerable leaders had the foresight to build a strong and coherent union. And as far as lying is concerned, we have no worries whatsoever since "honest Abe" Jean-Claude Juncker reappeared on stage. Aren't you guys jealous yet? I bet you are!

All we have to do now is deal with those pesky Greeks without bankrupting our entire banking system and we're good.

Tue, 01/27/2015 - 21:10 | 5713829 adr

I blame the French. Damn French. Fucking bastards stole my family's money and land, forced my ancestors to flee to Canada to trap beaver.

Tue, 01/27/2015 - 19:45 | 5713477 eric89074

There's plenty of low paying part time work if you want it.

Tue, 01/27/2015 - 19:46 | 5713483 Playtime's Over

If only they would raise the minimum. Heaven would ensue. And besides, it's Bushs fault. Our king reigns, Were livin the dream, quit fighting it all you haters........just be happy. <sarc> just in case you didn't know already.

Tue, 01/27/2015 - 19:56 | 5713535 bigfire