October 06, 2009
The economy is much worse than the government is reporting.
The U.S. economic slump earlier this year was so severe it short-circuited the government?s model for calculating payrolls, raising the risk that today?s jobs report may be too optimistic.
About 824,000 more jobs may be subtracted from the payroll count for the 12 months through last March when the figures are officially revised early next year, a Labor Department report showed today. The revision would be the biggest since at least 1991.
The bulk of the miss occurred in the calculations for the first quarter of this year, the Labor Department said. The economy shrank at a 6.4 percent annual pace in the first three months of 2009, the worst performance since 1982.
The figures raise the possibility that the government?s calculations continue to miss the mark.
?We are probably still underestimating job losses,? said John Silvia, chief economist at Wells Fargo Securities LLC in Charlotte, North Carolina. ?There could be another 30,000 to 40,000? that the data isn?t picking up, he said.
That would mean the loss of jobs for September could turn out to be as high as 300,000, rather than the 263,000 reported today by the Labor Department. Today?s report also showed the jobless rate climbed to 9.8 percent last month, a 26-year high.
The potential revision for the year through last March would mean that the economy lost 5.6 million jobs for the period instead of the 4.8 million now on the books.
The payroll estimates are based on a government survey of about 160,000 businesses and government agencies covering around 400,000 worksites.
Once a year, the Labor Department revises its payroll figures after combing through tax records from the unemployment insurance program that covers practically all businesses. Those records are only available after a lag, explaining why it takes more than a year to make the tabulations.
The department uses a formula, known as the birth/death model, to determine the influence on payrolls from the formation and demise of businesses.
Because the government doesn?t know if a company fails to respond because it has gone out of business or is just late, it estimates the number of companies that may have folded. By the same token, it plugs in an estimate for the formation of new businesses to account for their hiring.
From April 2008 through December, the tax records showed the Labor Department?s figures overestimated payrolls by about 150,000, said Chris Manning, the national benchmark branch chief at the Bureau of Labor Statistics. That implies the estimates missed the mark by about 675,000 in the first quarter of this year, which currently shows a 2.1 million drop in payrolls.
Even the Bureau of Labor Statistics’s “unemployment rate,” which would be above 10 percent if recalculated with this data, offers an all-too-rosy picture of the economy, as the number excludes underemployed workers and those who’ve dropped out of the workforce altogether. The BLS’s “U6” number, which includes these workers, is close to 17 percent. John Williams, who tells it like it is at Shadow Government Statistics, has concocted an alternative unemployment rate that’s now at the Depression level of 21 percent.
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