Saturday, November 13, 2010

Henry Blodgett Tells The Truth about the October employment numbers, or "This one goes to eleven..."

Today I must depart from my recent rants about medical journalism to give a shout out to Henry Blodgett and John Maudlin.  Maudlin writes a weekly investor email that parses economic data, reinterprets it, and offers far better analysis than most business journalists can muster in their entire career. Henry, well, he wrote about it and gave us a GREAT headline...

"Wow -- Check Out How Blatantly Our Government Misled Us With The October Jobs Numbers!"

Read more:

I encourage you all to read at least the Blodgett post, if not his source.

Basically, the government came out and said that we added 100,000 jobs in October. That's a nice story. The economy is on the mend, the bluebird of happiness is chirping away, babies are cooing and... wait, is that my BS alarm going off? Darn, I hate it when that happens.

Turns out, employment numbers are a result of a survey (mmmm sampling error smells good... but I won't even go there). After the survey folks at the BLS (and they ARE actually REALLY smart folks) apply a factor to the number to adjust for "seasonality".  What they are trying to accomplish is taking out the "noise" in the employment numbers. A perfect example is in June when all those young whipper-snappers graduate and can't find jobs and move home to mommy and daddy's basement.  No one wants to say, oh we now have 300K extra people without jobs (when actually, when you think about we totally do)... SO instead they "adjust out of that by multiplying the results by a factor of <insert result of scary looking algorithm designed to make your average mathphobe break into a cold sweat at the sight of it here>.

Well, they really did it this time.  They changed the factor. The following is a GROSS oversimplification for illustrative purposes. So 1,000,000 X .6 = 600,000. 600,000 employed people in September.  Now, the folks at the BLS thought this month seems different. All that Halloween candy made them giddy so they decided to change the factor to .7. In October, they say, 1,000,000 X .7 = 700,000. OK, but did we get 100K new jobs of course, not.

Here's the deal, anyone in government wanting to make a name for themselves would love to say 700,000-600,000 = 100,000 new jobs. IT'S A HALLOWEEN MIRACLE!

The reason this is so exciting is that a journalist has finally reported not on the number as released but on the manipulation of the data and how taking the number at face value is an insufficient form of inquiry.  

The other reason this is so funny is that the BLS basically just changed the scale of the ruler they use measure to measure employment. This one goes to 11... (If you don't recognize the reference, please add This Is Spinal Tap to your Netflix queue.).

Have a wonderful weekend. It's beautiful here in SF and I'm off to enjoy it with my husband and baby girl.


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