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Gallup Economist: Jobless Rate Lacks ‘Validity’

From Gallup’s chief economist:

Time to Replace the Unemployment Rate

By Dennis Jacobe | Friday, October 5, 2012

Friday’s BLS report of a drop to 7.8% in the Household survey seemed to surprise everyone, as has been the case on many occasions this year.

The problem is that even though the Household survey tends to be very volatile, this decline seems to lack face-validity, particularly after the prior month’s numbers. The consensus estimate was that the government would report that the unemployment rate was unchanged at 8.1% in September. GDP growth was 1.3% in the second quarter and seems to be no better this quarter. The government’s Establishment survey shows there were 114,000 new jobs created in September — very close to the consensus of 113,000 — and not sufficient to lower the unemployment rate

In other words, Jacobe in comparing the more reliable ‘establishment survey’ to the ‘household survey.’ The ‘establishment survey’ is based on a survey of approximately 140,000 businesses and government agencies and is considered to be much less ‘volatile.’)

Household Results Should Be Discounted

A quick comparison of the government’s seasonally adjusted and unadjusted employment data seems hard to reconcile with the weak economy. For example, the government shows the number of employed workers increasing by 775,000 in September from August on an unadjusted basis. This surge in hiring seems surprisingly large given the current economy, not to mention the even larger adjusted increase of 873,000.

Which is the biggest surge in jobs since 1983, when the GDP was growing at rate of a 9.3%, not 1.3% like today.

Similarly, the number of unemployed declined by 954,000 in September on an unadjusted basis. This is reduced to a smaller adjusted decline of 456,000 — but both numbers are also surprisingly large.

The Household data raise similar questions when averaged over time. Over the past two months, the unadjusted increase in the number of Americans employed has totaled 207,000 while the number of unemployed workers has declined by 1.66 million. The difference is made up by a decline of 1.45 million workers in the size of the workforce.

As a result, the unadjusted unemployment rate has plunged by one percentage point over the past two months to 7.6% from 8.6% — an enormous decline given the weak economy.

Over the same period, the seasonally adjusted rate has fallen 0.5 points to 7.8% in September from 8.3% in July.

Focus Should Be on Payroll to Population

The lack of face-validity of the government’s unemployment numbers creates major problems, particularly during a presidential election year. The situation is worsened by the huge number of complex adjustments made to the data.

Which is a gentle way of saying that the numbers can be manipulated during an election year.

Rather than debate whether something is wrong with the government’s estimation process, it seems reasonable to look at other measures as an alternative.

Gallup’s P2P is such an alternative. It is simple to calculate and thus, transparent to the public. It is based on 30,000 phone interviews a month. Most importantly, it provides insight into real job market conditions.

Mr. Jacobe had mentioned the advantages of the P2P standard earlier:

Gallup has proposed such a measure — Payroll to Population (P2P) — the number of Americans employed full-time for an employer as a percentage of the U.S. population. This is a much simpler measure that has none of the numerous adjustments made to the seasonally adjusted unemployment rate. The P2P deteriorated slightly to 45.1% in September from 45.3% in August, suggesting the real jobs situation was essentially unchanged last month.

Of course this standard will never be adopted precisely because it isn’t easy to manipulate.

This article was posted by Steve on Monday, October 8th, 2012. Comments are currently closed.

4 Responses to “Gallup Economist: Jobless Rate Lacks ‘Validity’”

  1. Right of the People says:

    You can believe the numbers if you believe in fairies and unicorns otherwise in the real world it’s a bunch of horse excrement.

  2. mr_bill says:

    GDP is anemic, inventories are flat, payrolls are down, inflation is up, energy costs are up, the dollar is depreciating relative to other currencies, unemployment applications are static, taxes are up, and investment incentives are non-existent. Amid all of these factors, we’re supposed to believe that the last month hosted the greatest increase in hiring for three decades?! We haven’t seen anything like this for 4 years, but suddenly we see fast improvement, just 30 days before the election. The much-heralded stimuless didn’t move the numbers this much. Count me with Welch, Gingrich, and Jacobe: I think the numbers were entirely fabricated.

    Oddly enough, I haven’t heard nerobama tell us which of his policies is responsible for this bolus of “new jobs.” I wonder why…

    • Rusty Shackleford says:

      “I think the numbers were entirely fabricated.

      How can they not be? If a republican was in office right now, the numbers would be sub-orbital altitude high. Like, skimming close to 12%.

      The utter dishonesty from the leftwing media is a crime in and of itself but hopefully those “precious” independents will be able to do math-in-public and not embarrass themselves again come November.

      “I haven’t heard nerobama tell us which of his policies is responsible for this bolus of “new jobs.” I wonder why…

      One, he couldn’t explain it even if he had been told. He is not a detail man the way Romney and Ryan are. He couldn’t care less about any of all that. His entire mental make-up is to avoid work, not be troubled by “piddly” things and make as much room for “Barry time” as possible.

      “Pesidentin’ be hart.”

    • mr_bill says:

      The proper question isn’t “who doesn’t believe the unemployment figure?” it is “who does believe it?” It couldn’t be any bolder of a lie if they said the sky is neon green.

      You are right about his disdain for the “piddly things,” nerobama’s solution isn’t to pursue pro-growth policies (or even pretend to), it’s to change the numbers and pretend the problem went away. So much like everything else he does. The president of the United States is sticking his fingers in his rather large ears and humming so he can’t hear the noise of failure.

      Pesident’n be hart indeed.

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