Jobless rate: slashed by the "plug factor"
"Plug Factor," a statistical adjustment used to
capture small-business job creation overlooked by the BLS's
standard surveys. Until 2000, it was set at 35,000 per
month. Now the plug factor regularly reaches 300,000....
...It turned out that virtually two-thirds of the new jobs had
come not from the survey, but from a new computer model.
For decades, the BLS has aimed at small businesses when
measuring job creation in times of recovery, especially
those not captured by its established monthly survey. Until
2000, this statistical adjustment was fixed at 35,000 each
month, called the "plug factor."
The recent sudden jump in these figures towards 300,000
each month results from a computer model based on a
calculated "net birth/death adjustment," which is supposed
to measure how many jobs small firms have created and
shuttered. In this way, the former monthly 35,000 figure
exploded into numbers that are almost 10 times greater.
For us, the sudden statistical spike in job creation during
March-May was massively out of whack with prior numbers and
other concurrent economic data to be credible. Then came
June: 112,000 new jobs created, less than half the expected
number. We never saw it mentioned that the net birth/death
adjustment contributed 182,000 to this disappointing
increase. Without it, employment would have fallen 70,000.
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