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« Seeing Value in Apple: Would a Stock Split Help? | Main | Weighing the Week Ahead: One Person's Risk is Another's Opportunity »

February 04, 2010



Barry -- You are certainly not one of the conspiracy folks, although you think that government agencies have a bias. You are trying to reach a valid conclusion, and I agree with the need to parse the data effectively. I also agree that your position has been consistent.

I think you are mistaken, and I would like to try to convince you with data. Perhaps I'll write a longer piece and lay out a few points. For now, here are two thoughts:

1)You state that "For example, in 2007, approximately 75% of reported new jobs were due to this adjustment." This is a factual error, and a big one. There were about 13 million new jobs in 2007, 4 million from new establishments. This is what I mean about benchmarking. You never look at the actual count (nine months later) to see if you were right.

2) What you are really doing is comparing the birth/death adjustment to the net job change. This has an important sound to it, but it is actually meaningless. Let us suppose, for example, that there was a net job loss in the month, but an actual gain in jobs at new establishments. (This is quite common). Your 75% measure makes the error of starting with the conclusion -- your pre-conceived notion that there are no new jobs. This leads your readers to believe that any such adjustment is an important error.

If we really want to parse the data, as you suggest, why not begin with data instead of an opinion? Go to the business dynamics series and see what really happened. Then see what the BLS forecast. Compare it to your own comments. If you do that for the entire period of time you have been criticizing them, you will see that you were wrong in 2006, 2007, and most of 2008. Only in 2009 did thing change, and it was not because of the b/d adjustment. It was due to the "imputation step" something you never analyze at all.

Thanks for taking the time to comment. Let's stick to the BLS point. We can discuss the recession and data another time, perhaps when I finally finish my review of your book -- which I enjoyed and have recommended to friends.


Barry Ritholtz

Wrong for years? In what way?

My position on B/D has been consistent for a long time: Ever since a major modification was made to the Birth Death adjustment (proposed in 2001, and implemented a few years after), the NFP data has become increasingly misleading.

The attempt was to capture early improvements in employment at the start of a recovery was the goal. But the trade off was it wildly overstated economic strength at the end of a cycle.

For example, in 2007, approximately 75% of reported new jobs were due to this adjustment.

In 2008, the BD adjustment inexplicably showed lots of job creation in construction and finance.

The people who ignored the below the headline changes missed the warning signs. Lots of economists blindly cheerleaded their way right into the recession -- never saw it coming. The worst offenders were the ones who dismissed the effects of the B/D changes. This cohort of economists totally missed the worst recession in generations -- they were utterly blindsided, and the people who followed their advice saw their 401ks and retirement accounts mangled.

Jeff, with all due respect, I do not recall where you stood pre-recession (Q4 2007) -- were you expecting an economic contraction? Were you misled by the BLS data? Did you have any clue of the coming storm?

My criticism of the BLS data -- I am NOT one of the a conspiracy folks -- is that it needs to be carefully parsed and dissected to get at the worthwhile data hidden within. The BD data was only part of it.

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