Monday, February 20, 2012

COP: Unemployment Rate: Grossly Distorted – How It’s Done


The unemployment rate we are fed each month is manipulated – fake, phony, false – not realistic, and the methods for determining the unemployment rate was new as of the January 2012 numbers. The real unemployment rate today is somewhere north of 10%. In January, when the unemployment rate dropped to 8.3%, the main stream media failed to report that the numbers, “seasonally adjusted,” for a one year period, were all applied to one month – January 2012.

The Economic Populist:See those huge three spikes in the above graph? That’s when the latest Census, taken every 10 years, has been incorporated into the data series. What happens is almost a do over, starting with the next year and you see a hugediscontinuity in the data when the Census has been incorporated into the non-institutional population statistic. Believe me, we did not get a streaming horde of illegal aliens in one month, nor did everyone decide to give spontaneous birth. Those spikes simply represent the tacking on of population controls to reflect the latest Census. Above is a close up to show the spike in non-institutional civilian population. See how even the monthly change is except between December and January? That’s where the yearly population adjustments are placed in the data series. The adjustments are literally just plopped into the month of January and this is why it is statistically invalid to compare December to January monthly changes. You simply cannot compare a change of a month, when one of those month’s includes a year of population adjustments.

To wit, is the current unemployment rate of 8.3% valid? Well, if you like the definitions used by the BLS, it is statistically consistent. Did 1.25 million drop out of the labor force all of a sudden? No, this has everything to do with the Census population levels. Basically there are more people and like many population numbers increasing by proportion with the Census 2010, so did the number of people not in the labor force.

The chart below:

The broken (dotted) red line is the true unemployment rate.

On the graph you can see that the real unemployment rates is above 10 percent.
The True Unemployment Rate: When the size of the participation rate is adjusted to account for the workers that should in the labor force but have given up actively seeking work, the unemployment rate remains elevated well above 10 percent.

The solid red line is the Bureau of Labor Statistice Unemployment Rate

…since the Bureau of Labor Statistics only measures the unemployed that are actively seeking work, as the participation rate plunges, so does the unemployed’s share of the labor force. As a result, the BLS unemployment rate trends downward despite millions of workers leaving the labor force.

The solid black line is The Romer-Bernstein Graph which predicted (incorrectly) the effect of Obama’s stimulus.

In 2009, the incoming Obama Administration released a detailed projection of the effect the stimulus would have on the unemployment rate. Today, it continues to divorce itself from the economic reality.

The gray solid line is the Participation Rate

The Bureau of Labor Statistics’ Labor Force Participation Rate measures the portion of the civilian population actively working or seeking work. During the Obama administration it has plunges as millions of workers have become discouraged and dropped out of the labor force.

Unemployment: The True Unemployment Rate and The Missing Worker

Mish at Global Economic Trends, in an incredibly detailed post on the January report says:

Grossly Distorted Statistics

Given the complete distortions of reality with respect to not counting people who allegedly dropped out of the work force, it is easy to misrepresent the headline numbers. Digging under the surface, the drop in the unemployment rate is nothing but a statistical mirage.

In January, those ”Not in Labor Force” rose by a staggering 1,177,000. Things are much worse than the reported numbers indicate.

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