Here's for wishing that the BLS had an easier method for pulling data on the birth-death model from their website.
Anyway, this might just be pulling stuff out from nowhere since I didn't extend the series for long enough, but I did some manipulation of the Establishment survey data that came out today to get an idea of what the results would have been if the birth-death model hadn't been adjusting the data. Here's my big problem, when we compare results from now to the last recession, you're not comparing the same thing since the Birth-Death model has been adding jobs. There have been different methodologies over the past 8 years or so, but as they have changed, they have been adding more and more jobs through the BD model. Ideally if you wanted to compare all of the data, you would completely remove the influence of the BD model from non-farm payrolls.
For example, several financial reporters have noted that the decline in this month was not nearly as large as from March to April 2001 when the economy shed 281,000 jobs. The birth death model added 52k in March and 75k in April of 2001 which would mean that the net effect would be losing 304,000 jobs (note that this comparison may not be perfect since the Birth Death figures could be non-seasonally adjusted and I'm looking at seasonally adjusted payroll data). In comparison, the April figure for this year was -20,000 before taking into account the Birth Death model, but -145,000 after. In other words, we lost about half as much as many jobs as the beginning of the last recession. The numbers for Feb-Apr have all been negative and for the year we have lost 457,000 jobs compared to adding 1,090,000 all of last year. In comparison, the first four months of 2001 didn't shed as many BD adjusted jobs. (though most of the job losses came in the second half of that year).
Again, I'm not sure if this analysis is the best, but my point is that you can't compare historical recessions to this one using job data that has been manipulated. So when you hear financial reporters say that the job report isn't that bad, know that they really don't know what they're talking about.
Addendum: if you take everything in non-seasonally adjusted figures (Dec and Jan are vastly different), then March showed 573 after B/D adjustment and April showed 578 afterwards. This is compared to 571 and 382 in March and April of 2001, respectively. Again, you really need to then re-seasonalize the data (by whatever method the BLS does it) to really compare it to what generally gets reported in the financial press.
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2 comments:
Keep in mind that making no adjustment for births/deaths is, in fact, a BIRTH/DEATH MODEL - one in which births always exactly equal deaths.
Is that an accurate model, do you think?
Over long (loooooonnnnnnggggg) periods of time, do you think perhaps that business "births" might exceed business "deaths?" If that is the case ... then an accurate birth/death model should be adding jobs. Correct?
It follows that, if over the long haul, business "births" outweigh business "deaths," then the unadjusted data - which implicitly models births as EQUAL TO deaths - would be too low.
If, over the long (looooooonnnnngggg) term, the ratio of births to deaths results in an exponential increase in the number of businesses (say even as low as +0.5% annually), then any accurate adjustment for birth/death would add an INCREASING number of jobs over the years.
Just a thought.
You make a good point Bill, but I would prefer to limit my critique to intertemporal comparisons of employment data. I still don't think you can compare the employment figures of this downturn (recession, bump in the road, hissie fit, or whatever they're calling it) with previous recessions because the data has been manipulated. There's no a priori reason why now, all of a sudden, we are birthing more businesses than we are destroying.
Over the short-term you would expect in good times that more businesses are started than destroyed and vice-versa for bad times. In the long-run there are very few businesses that last more than 50 years (look at the Dow components 50 years ago if you don't believe me). However, I don't use employment statistics for very long-term analysis. What's important to economists or traders is when the turning point is. If the Birth/Death model doesn't take into account business cycles (as it is overestimating new job creation in the financial and construction sectors), then it is not useful for turning points and not useful to me. That's not to say it has no value altogether. Just that it doesn't suit my uses.
The politician who is trying to figure out how many jobs they created might find it of more use.
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