Saturday, August 9, 2014

3.3 Million Phantom Jobs 'Created' Thru Faulty Birth/Death "Adjustment"

Federal government incompetence strikes again.  Or are they the willing conspirators in the exaggeration of the reported improvement in the employment situation?  (h/t zero hedge)

Only in recent months has the total number of employed reached the pre-crisis levels of 2007 as reported by the BLS.   The financial crisis caused about 8.5 million persons to lose their job according to the BLS, so we've supposedly gained those back after 5 1/2 years.  But, during the recovery from the March 2009 recession bottom, fully 3.3 million jobs (out of the 8.5 million who lost jobs) have been added back to the ranks of the employed through a faulty Birth/Death "adjustment" at the BLS.   Maybe that's why polls show that people are still pessimistic about the economy with many saying that the economy is still in recession?

The Birth/Death adjustment was designed to capture the jobs at new, small firms that are missed in surveys.  Historically, small start-up firms are the major job creators in the economy.  Start-up firm creation typically exceeds small firm failures by a wide margin.  But, this situation hasn't been true since the 2007 crisis which is why the recovery in US employment has been the slowest in history.   In fact, firm exits have exceeded firm entries since 2007. There are fewer start-ups and they are failing at unusually high rates.

The following chart shows that entrepreneurial start-ups has fallen below the failure rate of these firms since 2007.  So, the entire pretext of adding "missing" start-up jobs due to normally high levels of entrepreneurial startups is no longer true.

Chart Showing the Decline of New Start-ups in the US Economy
Perhaps the BLS should talk to the Census Bureau?
But leave it to the government to never fix anything.  They have their excel spreadsheets and keep manipulating the employment situation.   And if that adjustment helps a Democratic President get re-elected, it's all the better.  After all, the Federal bureaucracy is predominately Democratic in party affiliation, in part, due to public union participation.  And why would a government employee vote for a "small government" political party that could put their gravy train job at risk??

Here's the tally of phantom jobs added to the workforce through a now-faulty birth/death adjustment (years 2009 to present):

Chart Showing Annual Additions of "Employed" Through the Birth/Death Adjustment

So, we live in a time where the widely reported unemployment rate has come down to 6.2% giving an "all clear" signal to the country (and voters).  But this low rate is mostly due to 10's of millions leaving the workforce (most gave up looking) so these millions of persons are no longer counted as unemployed.  We know the economy is not creating enough jobs for immigrants and population growth.  There's a reason that a record 91 million in this country are not working and the number of people working compared to the working age population is back to 1978 levels.

Fewer Americans are at work today than in April 2000, even though the population since then has grown by 31 million.

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