BarroMetrics Views: Cooking the Books
The stats of some countries, e.g. China, we just can’t believe. To get a handle on their affairs, we rely on anecdotal evidence or on numbers the Central Government fails to hide. When I first started trading in the early 70’s, the one country’s stats I felt I could rely on was that of the US. But, this is rapidly becoming a thing of the past.
Let’s take the Non-Farm Payroll on Friday. In particular, I want to look at the job number and the unemployment rate.
According to ShadowStats:
“The reported seasonally-adjusted 200,000 jobs surge in December 2011 payrolls included a false, seasonally-adjusted gain of roughly 42,000 in the “Couriers and Messengers” category. That gain was an artifact of the seasonal-adjustment process and will remove itself in the January 2012 numbers.
We were aware of what seemed to be a buried modeling problem within the Bureau of Labor Statistics’ (BLS) adjustment process, which we expected to come to the fore today and to be modified by the BLS, but the BLS did not correct the series. ….
We asked the BLS for a comment this morning and were told that it was a modeling issue, which the BLS cannot override. ….the 42,000 jobs surge in “Couriers and Messengers” appears to have been the biggest single issue.”
Hmmm sounds suspiciously like a comment that says..’we know the model has a problem but, we cannot change the incorrect result’. The last time I heard a similar comment was in relation to the VAR model that said the sub-prime loans were AAA+. At least, Shadowstats believe the numbers will be self-correcting this month. We’ll see.
The BLS reported the unemployment rate as being 8.5%.
That sounds like a great improvement until you realize that the government is not counting millions of unemployed. So, what we saw was a civilian population that increased by a reported 1.695 million, and a labour force that rose by scant 274,000. The BLS the ignored the ‘uncounted unemployed: 1,421,000’ to arrive at the rate of 8.5%. So, by the magic of cooking the books, we see a ‘falling’ unemployment rate.
What is the true rate?
Surprisingly, the BLS continues to track a reasonable estimate of what the unemployment rate should be. It’s the U-6 statistic in the report. That number shows 15.2% unemployment! So, we can say that so far as the BLS is concerned when we include all the ‘ignoreds’, the rate is 15.2%. But, even that is not the ‘real’ number according to ShadowStats – its number is closer to 22.5%!
Here is how ShadowStats arrives at its numbers: “The seasonally-adjusted SGS Alternate Unemployment Rate reflects current unemployment reporting methodology adjusted for SGS-estimated long-term discouraged workers, who were defined out of official existence in 1994. That estimate is added to the BLS estimate of U-6 unemployment, which includes short-term discouraged workers.”
Given these numbers, sooner or later, the FED will pressure the banks to lend. Indeed the FRED graph is rapidly approaching a decline which in the past has signaled a top in the S&P – but that is a story for another day.