JOHN WILLIAMS’ SHADOW GOVERNMENT STATISTICS

FLASH UPDATE

June 6, 2008

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May Payrolls Plunged 134,000 Net of Concurrent Seasonal Adjustment Bias

Employment and Unemployment Reports Consistent with Deepening Recession

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The SGS-Alternate Unemployment measure will be posted to the Alternate Data tab later today.
 – Best wishes to all, John Williams

 Headline Monthly Payroll Changes Suggest Data Massaging

The pattern of impossible biases being built into the headline payroll employment changes — as detailed in the June 2nd Flash Update — continued with the May employment report. Instead of the headline jobs loss of 49,000, which was at or better than consensus, consistent application of seasonal-adjustment factors would have generated results showing a monthly jobs loss of 134,000. The implication here is of intensifying political manipulation of the data, where the cumulative 12-month-rolling upside headline bias increased from 507,000 in April to 595,000 in May.

The reported fifth consecutive decline in monthly payrolls as of May indicated a recession in place, with annual payroll growth on the brink of turning negative. The sharp upturn in unemployment also was consistent with a contracting economy. Still, as has become the standard pattern — with fairly predictable gimmicks — the weakness in the jobs report was understated, even beyond the apparent manipulation of seasonal factors.

Payroll Survey. The Bureau of Labor Statistics (BLS) reported a statistically-insignificant, seasonally-adjusted jobs loss of 49,000 (64,000 net of revisions) +/- 129,000 for May 2008, following a revised 28,000 (previously 20,000) jobs loss in April. Annual growth in total nonfarm payrolls slowed further to a recessionary 0.08% in May from 0.29% April.

Birth-Death/Bias Factor Adjustment. One element continuing to add upside pressure to the numbers was the monthly bias factor (birth-death model), which never was designed to handle the downside pressures from a recession. The May bias was a net addition of 217,000 jobs (up from the prior May’s 174,000 upside bias), following a net addition of 257,000 jobs in April. The May add-factor mindlessly continued to spike construction jobs (up by 42,000) and financial activities jobs (up by 9,000), irrespective of ongoing anecdotal evidence of trouble in those areas.  

Seasonal-Factor Gimmicks. As mentioned above (see the June 2nd Flash Update for detailed background), year-to-year growth should be virtually identical in both the seasonally-adjusted and unadjusted series, and applying the unadjusted annual change to the seasonally-adjusted year-ago numbers for April and May suggests that the seasonally-adjusted month-to-month change should have been a contraction of 134,000, instead of 49,000. This reporting gimmick is made possible by the "recalculation" each month of the monthly seasonal factors ("concurrent" seasonal adjustment). If the process were honest, the suggested differences would go in both directions. Instead, the differences almost always (11 out of the last 12 months) suggest that the seasonal factors are being used to overstate the current month’s headline payroll change, and the bias increasing.

Household Survey. The usually statistically-sounder household survey, which counts the number of people with jobs, as opposed to the payroll survey that counts the number of jobs (including those of multiple job holders), showed household employment fell by 285,000 in May, after a 362,000 increase in April.

The May 2008 seasonally-adjusted U.3 unemployment rate showed a statistically-significant increase to 5.49% +/- 0.23% from 4.95% in April. Unadjusted, U.3 increased to 5.2% in May versus 4.8% in April. The broader U.6 unemployment rate rose to an adjusted 9.7% (9.4% unadjusted) in May, versus 9.2% (8.9% unadjusted) in April. Adjusted for the "discouraged workers" defined away during the Clinton Administration, actual unemployment, as estimated by the SGS-Alternate Unemployment measure, rose to 13.7% in May from 13.1% in April.

Employment Environment. The employment deterioration in May ran in the right direction, but still shy of reality, per trends indicated by some of the better-quality employment-environment indicators: April help-wanted advertising remained at an historic low, new claims for unemployment insurance have surged sharply in terms of annual growth, and a recession-level employment reading was seen once again for the May manufacturing purchasing managers surveys, while the May nonmanufacturing survey employment measure dropped into recession territory.

Full details will be covered in the pending newsletter.

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The U.S. economy remains in an intensifying inflationary recession, while the banking solvency issues fester. Continuing market turmoil, central-bank/government intervention (particularly in the currency and gold markets), increasing economic data distortions and ongoing systemic shocks remain within the general outlook, which is unchanged.

Publication of the next regular newsletter should be over this coming weekend. Any intervening Flash Updates and Alerts will be posted as needed. All postings will be advised by e-mail.