It’s Not a Conspiracy, Just Imprecise Jobs Data

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Almost immediately after the Bureau of Labor Statistics (BLS) released Friday’s employment report, conservatives claimed a conspiracy to cook the books to help get President Obama reelected. How does the unemployment rate drop 0.3 percent, they asked, when GDP growth is miniscule and there’s barely enough job growth to absorb a growing population?

There’s no conspiracy here. Sometimes you get unbelievable numbers when you combine an imprecise survey with tricky data adjustments. It’s wrong for the Republicans to claim that the hard working analysts at the BLS are behaving dishonestly. But it’s also wrong for Democrats to claim that the 0.3 percent drop in the unemployment rate indicates a healthy job market.

Let’s start with the problematic numbers. The BLS’s survey of households showed an 873,000 person increase in employment in September, the largest increase since 1983 not resulting from a statistical adjustment. By contrast, the establishment survey showed just 114,000 jobs being created, resulting in a 759,000 job gap between the two surveys, the biggest since 2003.

The BLS household survey also showed that the number of people officially unemployed declined by 456,000 last month. Because 114,000 jobs is only slightly more than is needed to keep up with population growth, this number seems wrong.

While these numbers are not believable, measurement error is the most plausible explanation. The BLS’s survey of households has a huge margin of error. The statistical agency is 90 percent sure that it’s household employment measure is within ±436,000 jobs of the actual number. That means, of course, that the actual number from September’s household survey could be as low as 437,000 or as high as 1.3 million.

The two series also define employment differently. The household survey includes people who work in agriculture, are self-employed, are on unpaid leave, and household and family workers not receiving a paycheck; but it does not count the multiple jobs that some people hold. To make the household survey more comparable to the establishment survey, the BLS also reports an adjusted household measure of employment, which showed that only 294,000 jobs were created in September.

The BLS adjusts its data for seasonality and sometimes its seasonal adjustment factor needs to be changed. The September jobs number might be evidence of that. The big increase in employment lies in the 582,000 people who started to work part time for economic reasons last month. But in 2011 the BLS estimated that the number of people working part time increased by 483,000 in September and declined 480,000 in October. Similarly in 2010, part time employment rose 579,000 in September and fell 419,000 in October. These offsetting movements suggest that something might not be right in the BLS’s adjustments for seasonality.

The BLS might need to fix its population estimates. As Harvard economist Greg Mankiw writes on his blog (http://gregmankiw.blogspot.com/), “If the BLS uses incorrect estimates of the size of the population, these errors will be reflected in its estimates of household employment.”

Finally, the household survey is prone to mistakes that occur when surveyors call people on the phone and ask for information. If those being queried refuse to answer or give inaccurate information then the survey results may be biased.

All of these measurement issues suggest that the drop in the unemployment rate to 7.8 percent isn’t an indicator of a robust job market. If it were, then the BLS’s measure of the percentage of the labor force that is unemployed plus those who are marginally attached and those who are working part time for economic reasons (called U6) should also have shrunk. But it remained at 14.7 percent in September.

While it is more interesting to claim political conspiracy than measurement error, the truth is that inaccurate economic data is a better explanation than ill intent for what happened to the unemployment rate in September.

11 Comments ▼

Scott Shane


Scott Shane Scott Shane is A. Malachi Mixon III, Professor of Entrepreneurial Studies at Case Western Reserve University. He is the author of nine books, including Fool's Gold: The Truth Behind Angel Investing in America ; Illusions of Entrepreneurship: and The Costly Myths that Entrepreneurs, Investors, and Policy Makers Live By.

11 Reactions

  1. Great commentary, Scott.

    But, I guess it’s human nature-and partisan nature, to agree with the numbers when they’re bad or good, and to disagree when they’re bad or good.

    At the end of the day, both sides will spin the numbers to their advantage, no matter how precise/imprecise they may be.

    The Franchise King®

  2. Hi Scott,

    Thanks for explaining this. Only one person that I know of seriously pushed the conspiracy theory — Jack Welch. Afterwards he regretted that and said he should have used a question mark in his tweet, and not stated it with such vehemence and certainty. Most Republican commentators who I saw questioned the numbers even if they weren’t sure why, and a lot (such as Charles Krauthammer) specifically said something to the effect of, “no I don’t think it was a conspiracy but there sure is something funny about these numbers.” But most didn’t do such a good job of explaining the numbers as you did.

    In the end, though, if you are someone who is unhappy with the last four years’ economy, I doubt that this latest jobs report did much to change that. The numbers are still not good.

    – Anita

  3. I like this article and the statistics that provide.Maybe you can give a lesson to our economist minister in Greece.

  4. Great article. I just wish someone in mainstream media would have had the sense to explain the situation instead of milking it for sound bites and partisan (on both sides) points.

  5. where did you get this data?
    “But in 2010 the BLS estimated that the number of people working part time increased by 483,000 in September and declined 480,000 in October. Similarly in 2011, part time employment rose 579,000 in September and fell 419,000 in October.”
    I show a 324,000 gain in people working part time in September 2010 and a decline of 107,000 in October 2010.
    And for 2011 I show 224,000 September gain and 177,000 October loss.

    • Conn,

      The website with the BLS data on seasonally adjusted number of people working part time for economic reasons can be reached here.

      http://data.bls.gov/cgi-bin/surveymost?ln

      Click on “Persons At Work Part Time for Economic Reasons – LNS12032194″ and retrieve data.

      You will get a spreadsheet with the header:

      Labor Force Statistics from the Current Population Survey
      Original Data Value

      Series Id: LNS12032194
      Seasonally Adjusted
      Series title: (Seas) Employment Level – Part-Time for Economic Reasons, All Industries
      Labor force status: Employed
      Type of data: Number in thousands
      Age: 16 years and over
      Hours at work: 1 to 34 hours
      Reasons work not as scheduled: Economic reasons
      Worker status/schedules: At work part time

      This is what I excerpted from the spreadsheet.

      Year Aug Sep Oct ChgAtoS ChgStoO
      2010 8804 9383 8964 579 -419
      2011 8787 9270 8790 483 -480
      2012 8031 8613 582

      I apologize if I caused confusion. I had 2010 as 2011 and vice versa originally which I have now corrected.

      I’m sorry but I am not sure what numbers you are looking at.

  6. “On a two-month basis, the household survey has shown the largest growth in government jobs — 604,000 — since the report started being tabulated in 1948, Lavorgna (Deutsche Bank) added.”

    Economist Questions Growth in Government Jobs

    http://blogs.barrons.com/stockstowatchtoday/2012/10/05/economist-questions-growth-in-government-jobs/

    Moreover, it is not just fringe blogs, and deeply skeptical economists, or ex-CEOs of mega corporations, who call out political shenanigans on yesterday’s number.

    From Jefferies economists: “It would truly be wonderful if these numbers were believable, but they are not believable.”

    From David Rosenberg (Canadian Gluskin Sheff economist): “If it’s too good to be true, then it probably is… the more inclusive U6 unemployment rate that does a much better job at capturing underemployment, remained stubbornly stuck at 14.7%

    • But Jack,

      Why are they, “Not believable” by Republicans when the unemployment numbers are trending down, but totally “Believable,” and used in speeches etc. by them when they’re trending up?

      Both sides use the numbers to their advantage when it’s to their advantage.

      The Franchise King®

    • Jack,

      What I wrote is pretty similar to what you quote. I said above: “All of these measurement issues suggest that the drop in the unemployment rate to 7.8 percent isn’t an indicator of a robust job market. If it were, then the BLS’s measure of the percentage of the labor force that is unemployed plus those who are marginally attached and those who are working part time for economic reasons (called U6) should also have shrunk. But it remained at 14.7 percent in September.”

      That seems similar to what David Rosenberg wrote.

      I wrote: “Sometimes you get unbelievable numbers when you combine an imprecise survey with tricky data adjustments.”

      How is that different from Jeffries economists who also say the numbers are “not believable”?

      You can have numbers that don’t make sense without any ill intent

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