Endless BS from the BLS

Not that numbers like today's should surprise anyone around here but, for perspective, we should probably take a few minutes to discuss the methodology.

First of all, the NFP numbers are always going to be part of the government MOPE and the pro-government shills in the media are always going to provide the necessary SPIN. That said, any discussion needs to begin with the report methodology itself. Namely, how can the BLS be expected to provide an accurate picture of November employment when we are only barely beginning the month of December? The answer is: They can't. The only way that an employment report can be cranked out so quickly is through the use of statistics and, frankly, guesswork.

And here's the rub...the "headline number", the stated unemployment rate, is simply a fraction. The BLS takes total labor pool and subtracts out the number of people that it thinks are actually working. From there, you divide the labor pool by the total number of unemployed and you get the "unemployment rate". It looks like this:

(Amount of People Unemployed) = Stated Unemployment Rate

(Total Available Labor Force)

If, for example, you have a 1,000 people in your labor force but 100 are unemployed, you have an unemployment rate of 10%. If 10 of the unemployed find work, next month you'd have 1,000 people in the labor force and 90 that are unemployed. This leaves you with an unemployment rate of 9%. See how that works?

The problem is in the methodology. The U.S. Bureau of Labor Statistics is using an antiquated system. They assume (wrongly) that, after 12 months of being unemployed, the people in question have either given up looking for a job or found some other way to survive. For the purpose of the labor report, these folks simply cease to exist and they disappear from the data. Because of this misassumption, the amount of people counted as unemployed and the total labor force have been shrinking. For November alone, the BLS shrunk both the numerator and the denominator of our fraction by 540,000. Stated differently, in November, 540,000 became unemployed for more than a year and, therefore, are no longer counted. They're just gone. Poof! Now, did some of the 540,000 find a job? Certainly, likely more than a few, but most are still alive aren't they? Aren't most still searching and scraping, diligently trying to make a living and provide for their families? Of course they are! But the BLS doesn't think so. The BLS just ignores them.

Let's get back to our fraction. In the data listed above, we showed a 10% unemployment rate by having 100 people out of 1000 not working. But, next month, we simply remove 10 people. They've been out of work so long that they must have just given up. Maybe they retired. Took disability. Left the country. Who knows and who cares? This doesn't matter to the BLS and their media shills. For this new month, we have 90 (100-10) people now unemployed and a total labor force of 990 (1000-10). What is our new unemployment rate? 90/990 = 9.1% WOW! Isn't that great?!? Our economy must be growing because our unemployment rate fell from 10% to 9.1% in just one month! Cue the band! Happy days are here again!!

Uhhh....not so fast. I think you all can see that this is nothing but statistical manipulation and nonsense. It's meaningless and deliberately misleading. Before you get too upset, realize that they've been doing this for years in their efforts to create a picture of a healthy and vibrant U.S. economy. The technical term for what I've described is the "Labor Force Participation Rate" and the chart below shows how this rate has been declining since 2001 and is now back to 1980 levels. Yikes! Don't look for this to get much better anytime soon but do expect continued scheming and distortion from the BLS in an effort to paint as rosy of a picture as possible.

Additionally, the BLS tells us that the numerator of our fraction actually grew this month by 146,000 jobs. Again, this is primarily a statistic-based guess and it seemingly ignores the other lousy economic data we've been seeing as well as the continued stream of corporate layoffs and the economic impact of Hurricane Sandy. The BLS told us this morning that the U.S. added 53,000 jobs in retail (for Xmas shopping), 23,000 in "Administrative and Waste Services" (that sounds pleasant) and another 23,000 in "Hospitality and Leisure". Sounds like a vibrant and growing economy to me! NOT!!

In the end, the data was gamed in the metals pits as an excuse to stop out some weak-handed longs but then, cooler heads prevailed and the metals have rallied. I have lasts of $1703 and $33.12 as I type, UP a little on the day. All is well and I expect/hope for a solid close. Then, we head into next week and the FOMC with their announcement of their plans for a world without $45B/month in Operation Twist. The metals should rally into the news next week and, then, continue on balance to rally for the remainder of the month. Apparently I have some company in this view. Read this: https://www.zerohedge.com/news/2012-12-07/gold-‘storm’-could-rise-sharply-next-week-fed-say-ubs-and-nomura

And that's all for now. Even though I fear that some of you think I'm creating the Jim Willie Podcast Network, demand is so great for more Jackassery that the two of us are recording another podcast in an hour or so. I'll post it later today so please be sure to check back this afternoon or over the weekend. Additionally, today's CoT should be really interesting, particularly in silver, because of the enormity of the moves during the reporting week. I'll be adding my initial reactions to the comments of this thread so look for that later on, too.

Have a great day and BTFD. Regardless of what anyone says, it ain't pretty and it ain't getting any better anytime soon.

TF

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Key Economic Events Week of 8/8

8/8 11:00 ET NY Fed Inflation Exp.
8/9 8:30 ET Unit Labor Costs
8/10 8:30 ET CPI
8/11 8:30 ET PPI
8/12 8:30 ET Import Price Index
8/13 10:00 ET UMich Consumer Sentiment
8/13 10:00 ET UMich Inflation Exp.

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