A Closer Look at the Jan. Jobless Numbers: Are They 'Being Made Up?

You may recall that major media outlets rejoiced and the markets jumped last Friday when the January jobs report was released.

“Labor Department today lowered the U.S. unemployment rate by two-tenths of a point to 8.3 percent, the lowest it’s been since February 2009,” Emily Knapp of Wall St. Cheat reported, “January data showed nonfarm payrolls to have risen a whopping 243,000, wildly exceeding even the most optimistic of economists’ projections.”

However, although the markets did indeed react positively to the good news, many analysts were skeptical of the data in the report.

“A month ago, we joked when we said that for Obama to get the unemployment rate to negative by election time, all he has to do is to crush the labor force participation rate to about 55 [percent]," editors at Zero Hedge wrote.

“Looks like the good folks at the BLS heard us: it appears that the people not in the labor force exploded by an unprecedented record 1.2 million. No, that's not a typo: 1.2 million people dropped out of the labor force in one month!”

What does this mean?

Zero Hedge explains:

So as the labor force increased from 153.9 million to 154.4 million, the non institutional population increased by 242.3 million meaning, those not in the labor force surged from 86.7 million to 87.9 million. Which means that the civilian labor force tumbled to a fresh 30 year low of 63.7% as the BLS is seriously planning on eliminating nearly half of the available labor pool from the unemployment calculation.

Even conservative radio talk show host Rush Limbaugh weighed in on the report, claiming that the data was "corrupt as it can be" because the Labor Force Participation Rate has been repeatedly adjusted.

Is Limbaugh out of line on this?

"After countless attempts to discredit or defend Friday's jobs report, we can all agree on one thing: The data is complicated," Gus Lubin of Business Insider writes. "So complicated that the BLS could make the economy look better than it was and no one would be sure."

That's more or less what David Stockman, former budget director for President Ronald Reagan, wrote in an email to former hedge fund manager Bruce Krasting.

On his blog “My Take on Financial Events,” Krasting wrote, “Is the current [Labor Force Participation Rate] a temporary phenomenon, or is this the 'New Normal?’”

Krasting believes that if the current Labor Force Participation Rate (LFPR) is the “new normal,” it could have severe – even dangerous – effects on the economy.

Why?

“Virtually all of the economic models used by CBO, OMB, SSA and private economists are assuming that the long-term LFPR will be in the mid-to upper 60s. The consensus is 2-3 [percent] higher than where it is today,” Krasting writes.

“If you plug in a rate of 63 [percent] versus 67 [precent] over the next ten-years, it makes a huge difference on the size of the deficit and the public debt. It would cause the deficits at Social Security and Medicare to explode. The percentage of GDP attributable to the government would inevitably rise. The economy, and society in general, would be socialized [emphasis added],” Krasting writes.

In response to Krastings’ criticism of the jobs report, Stockman writes: "...if you spend a little time with these numbers you will know that they are being made up."

Here's the email (via Wall Street Examiner):

…I’m wondering if this goes much deeper. I don’t particularly believe in tin foil hats, but all of these mainstream economists treat the BLS and BEA data like it’s holy writ—when it’s evident that the reports are so massaged, estimated, deemed, revised, re-bench marked and seasonally adjusted that any month-to-month change has a decent chance of being noise. What deep secret might they be hiding?

So on the labor force participation rate they say, “No it didn’t go down in January because the 2012 numbers are re-bench marked for the 2010 census,” but for some reason the BLS didn’t bother to update the 2011 civilian population numbers, including December. Thus, the BLS published apples-to-oranges numbers on this particular variable and the footnote says the December participation rate would have been the same as January, if they had revised it!

Yet on another variable— the establishment survey jobs count—they were also busy re-benchmarking–but here they did update the originally reported numbers for every month of 2011. Even then, it is hard to say what got updated because the originally reported numbers each month are then revised during the next two reporting months—with any excess or shortfall reallocated to earlier months outside the three month window, which are not published on a revised basis, even though they have been revised! This reflects a wacko thing called the concurrent seasonal adjustment method.

… your point is that the longer-term trend of the labor force participation rate is really bad, and this truth is absolutely validated by the January report. Except it would have been equally bad in December had it been reported with the new census data…

But the mainstream narrative never gets to the trend. In this case, the plain fact is that we are warehousing a larger and larger population of adults who are one way or another living off transfer payments, relatives, sub-prime credit, and the black market. My suspicion is that this negative trend and many others like it get buried by the monthly change chatter from mainstream economists and on bubble vision, and that these monthly deltas are so heavily manipulated  as to be almost a made-up reality. Call it the economists’ Truman Show.

…

In short, if you spend a little time with these numbers you will know that they are being made up. Funny thing that I remember during the depths of the 1982 recession Reagan read in Human Events one night that the seasonally adjusted numbers were being manipulated and one should look at the unadjusted numbers, instead. The next morning during an economic update briefing Reagan said, he wanted to talk about the “unadjusted” unemployment rate. Marty Feldstein turned white as a ghost, and then talked him out of it. Hmmm!

Read the full email here.