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Beware the Birth/Death Jobs Hedonics

Friday, October 08, 2004 | 06:19 AM

The always interesting John Crudele of the New York Post argues in a provocative column Thursday that today's Employment situation release could hurt President Bush.

I don't think so -- not because Job growth is so spectacular -- its not; Rather, because the revisions (March 2003 - March 2004) are likely to be upwards. I am no fan of Hedonic adjustments, but they are more likely than not to be positive. So even if the headline number today is awful -- or "stinky" as Crudele describes it -- the revisions may well act as a presidential parachute of sorts.

What makes Crudele's columns so intriguing is that he is one of the few (if only) mainstream business journalists who have been calling the BLS out on their Birth/Death adjustment. Here's the money quote:

"But here's why the September jobs number could be stinky: Each month the Labor Department plugs into its employment number something called the Birth/Death Adjustment. Explained simply, this adjustment tries to take into account the number of jobs quietly created by companies being born, or jobs lost because companies go out of business.

The government assumes that newborn or dying companies are missed by its surveys.

This adjustment has proven to be the best indicator of monthly job growth so far this year. In fact, it looks suspiciously like these guesses may account for almost all the growth achieved in some months.

Take May, for example. That month the government announced the creation of 192,000 jobs. But it added 195,000 jobs to its count because of its Birth/Death Adjustment calculation. So, all the jobs came from generous assumptions rather than actual surveys.

And when job growth was weak — as it was in July — the government was either adding few jobs for new company formations or deducting jobs because it believed more firms were dying than being created."

Crudele concurs with our recent critiques of how bad the economists have been this year. He observes that the experts — "who've been inexpertly wrong most of this year — think the Labor Department will announce 150,000 new jobs in September . . . But for growth to be that good, or even better, the economy will have had to produce real jobs for a change because there aren't going to be any beneficial assumptions (a.k.a. "guesses") coming from the Labor Department."

We'll find out soon enough.

Sources:
Sept. Jobs Numbers Could Hurt Bush White House
By John Crudele
NY Post, October 7, 2004
http://www.nypost.com/business/19971.htm

CES Net Birth/Death Model
Bureau of Labor Statistics
U.S. Department of Labor, 9/3/2004 12:30:45 PM GMT
http://www.bls.gov/web/cesbd.htm

The Contribution of Establishment Births and Deaths To Employment Growth
James R. Spletzer
Bureau of Labor Statistics, 1998
http://www.bls.gov/ore/pdf/ec980020.pdf