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Strategies & Market Trends : Booms, Busts, and Recoveries

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To: smolejv@gmx.net who wrote (39559)	10/13/2003 1:35:00 PM
From: AC Flyer	Read Replies (2) of 74559

DJ: You are reiterating the doomster-oriented assumption that the BLS employment statistics are undercounting the unemployed. I suggest the opposite is true - during recoveries from recessions the BLS systematically undercounts the number of employed, thus making the BLS-generated unemployment rate unnecessarily pessimistic. I have attached a CSFB report that lays out the reasons for this persistent bias. Here is the much-simplified Cliff's Notes version. The BLS uses two different surveys for measuring employment - the Establishment Survey and the Household Survey. The Establishment Survey is based on actual payrolls at existing businesses. The data from this survey are more quickly processed and form the basis of the BLS's preliminary employment reports. However, the Establishment Survey totally ignores the farm sector, the self-employed and more importantly, new businesses. The Household Survey includes these sectors. Recessions seed a process of creative destruction in the labor market and so, while many jobs permanently disappear through structural changes in the economy, many new businesses and many new jobs are created. When the Household Survey data is reconciled with the Establishment Survey, these new jobs are counted (estimated) and the employment data are revised upwards. At a minimum, take a look at Chart 2 on page 2 of the attachment, which shows a significant divergence between the Establishment Survey and the Household Survey since early 2002. Part of the divergence results from a non-back-dated change in methodology for the Household Survey, but even so, there is a significant discrepancy between the employment pictures painted by the two surveys.

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