It's A Complete Farce

Statistics are what the powers that be want you to believe them to be, nothing more and nothing less - Kerry Lutz,  founder of the FinancialSurvivalNetwork

With regard to the quote above, Kerry Lutz had me as a segment guest on his FinancialSurvivalNetwork radio broadcast.  The topic was fraudulent Government statistics and you can listen to it here:  LINK

I honestly don't know how Obama gets up in front of crowds today and claims that the economy is getting better and that jobs are being created.  I find it exceedingly hard to believe that he doesn't know the truth about the Bureau of Labor Statistics preposterous calculation of the monthly non-farm payroll report.  I find it even harder to believe that anyone with functioning frontal lobes would believe the absurd "report."  It is a complete farce that CNBC/Fox Business/News/CNN and all other media sources discuss and debate this particular Government economic statistic as if it has any semblance of credibility.

The Government reported this morning that the economy produced 171,000 new jobs in October, well in excess of the average estimate of 125,000 - the latter number a nonsense estimate based on highly manipulated data, the former a fantasy beyond any remote rationalization.  

The primary driver of the employment report today was the nefariously mysterious "birth/death model."  For today's particular report, the birth/death model contributed 90,000 jobs to the Government's statistical stew.  Let's take a look to see exactly what this is and how it is applied.  The metric is supposed to measure employment growth created from new business formations net of business "deaths."  Here's the key definitional sentence from the BLS website:

The sample-based estimates are adjusted each month by a statistical model designed to reduce a primary source of non-sampling error which is the inability of the sample to capture, on a timely basis, employment growth generated by new business formations.

To save you all the brain damage from translating that sentence, here's what it means:   "A primary source of non-sampling error" means that the Government has no possible way of figuring out how many, if any, new businesses were formed during the period of time when the Government worker bees were calling around to try and figure how many people were actually hired and fired in the previous month.  The data gathering for this comes from sampling about 1/3 of all Unemployment Insurance tax accounts.  You can read all about the birth/death model here:  LINK

Essentially, what the Government is doing is using a small universe of businesses that contribute to the unemployment insurance program to determine the extent to which new accounts were opened and closed.  Then it extrapolates out from that based on some unexplained statistical model the number of new jobs, net of jobs lost, that were created by the private sector from new business being formed and closing.  Essentially the Government is "imputing" the number of new jobs that were created from an "imputed" number of new businesses that the Government thinks might have been started during the previous month.  I am begging someone to explain to me how this can be even remotely accurate.

The word "impute" ("imputing") is actually used in the BLS' description of the birth/death model.  Here's the dictionary of the word "imputation" in reference to its use in business:  "to give (a notional value) to goods or services when the real value is unknown."  In short, to make it up when you don't know the truth and you don't have verifiable data.

The Government goes on to explain/claim that "research" indicates that contribution to jobs growth from birthing/dying businesses is "relatively small and stable."  Hmmm.   Not only is this claim completely unsubstantiated, it's makes no sense in the context of reality.  First, here's a chart of the birth/death data on a monthly basis as compiled by Zerohedge:  LINK  Does that look like the picture of stability?  Second, in the context of the standard economic cycle, it would make sense that in a growing economy a lot of new businesses would be formed and in a declining economy a lot of small businesses would die.  We've had 4 years of a stagnant economy, with little nominal growth and negative real growth (after the adjustment for real inflation).  It would be realistic to assume that new business formation during this period would be in decline and business deaths would be accelerating, especially in comparison with new business formation from say, 1995-2005.    During the latter period we had new technology mushrooming and then many finance-related businesses flourishing - both a product of Fed-driven fiat currency asset bubbles.  We've had none of that except for the expansion of the Government in the last four years. 

As John Williams has pointed out many times in the past, the current Government statistical computation models were constructed during a period when we had actual growth in the system.   The models were never adjusted and revised to account for decelerating growth and actual decline, which means that the models are egregiously inaccurate.  This makes sense if you have any background in statistical/econometrics forecasting theories, which I happen to have had the misfortune of being forced to study at the University of Chicago.  Talk about something causing brain damage.

Finally, the birth/death definition page at the BLS website notes that:  "Note that the net birth/death figures are not seasonally adjusted, and are applied to the not seasonally adjusted monthly employment estimates to derive the final CES employment estimates."   To translate, what this says is that the Government conjures up a b.s. estimate for the number of jobs created by new business formation, does not make any "seasonal adjustments" to it, adds it to the unadjusted employment estimate and then runs it thru it's covert "ARIMA time series model" and produces the employment report.  This is the model that John Williams references as being entirely inaccurate.

The way I see it, the Government's monthly employment report - especially when considered in the context of what is going on in the real economy (growing number of people on food stamps, social security disability, long term unemployment insurance and student loans) - is not only completely fictitious, but the fact that everyone discusses the report in a way that gives it some modicum of credence shows that our entire system has diminished into a complete farce.