Prudent Money

Blog Topics

<-- Back To Main Blog Page
  • JFile::read: Unable to open file: ''
Over Reporting of Unemployment Numbers

To listen to the politicians in Washington, the unemployment problem is well on its way to getting solved. Just like that, the unemployment rate fell to 9.7% from 10% and we only lost 20,000 jobs. As a rule of thumb you never want to fully trust the sound bite that leaves the mouth of a politician. As another rule of thumb, you don’t want to fully believe the headline number that the government is reporting either.

Politicians don’t care how you get to the more positive numbers; they are just going to run with it and call it reality. January’s unemployment numbers are far from reality.

The Drop in the Unemployment Rate

How can you get to a lower unemployment rate with so many people unemployed? It is pretty easy. You just don’t count them. Hundreds of thousands of people have fallen out of the system since they have been unemployed for so long. Then there are the ones who have given up. They are just not being counted. As a result, you get a lower rate.

Seasonality also plays a part. There are a lot of part-time employed workers that are hired depending on the time of the year. For this report, seasonality gave the report a positive bias.

The lower drop in jobs

As we have discussed throughout the year, the government estimates how many jobs were created through the “birth/death” formula. Typically, this adds hundreds of thousands of jobs throughout the year. These aren’t verifiable jobs. These are jobs that the government “assumes” are created from small business. In January they typically revise that number and subtract jobs from the system. These are pretty large revisions. This revision was a job loss of 427,000 jobs for the month. Yet, we only lost 20,000 jobs? Really??

That is the magic of revision. They wait until time has passed and then subtract jobs from past months and even years well after the fact. They will get that figure in there some way. Getting it into the system can happen well after the fact when it will not affect the market. Can you imagine the carnage on Wall Street had they really reported the truth? They will report it when it matters the least.

I am currently reading a very detailed account of all of the financial crises that this country and other countries have faced through the decades. The premise of the book is that it is not different this time and this is not unprecedented. As I get through the book, I will write about it. The authors write that a common thread exists amongst all financial crises. It is the crisis of confidence. Confidence can quickly escalate to crisis levels.

My greatest concern is that this Government continues to sell the American people on a story that does not jive with reality. Confidence could be severely damaged when reality come into full view.

For a good example of this in real time, just watch the implosion of Toyota. You are looking at a car company that has been hiding problems for years. Now that the truth is coming out, there might not be enough confidence left for consumers to want to buy a car that has had a bad sudden acceleration problem. It looks like they really don’t have an answer for it and they are buying time. Well, more on that story at a later date!

blog comments powered by Disqus