Labor Report Review

U.S. employers unexpectedly cut 85,000 jobs in December, government data showed on Friday, cooling optimism on the labor market's recovery and keeping pressure
on President Barack Obama.

Yra Harris pens a nice blog called Notes From the Underground. Under the title Yra writes, most likely quoting a BLS statistician directly, "where 2+2=5 is also a beautiful thing."

The 2+2=5 philosophy drives many aspects of perception driven economics (spin or MOPE), but no where is this more apparent than the labor numbers.

F-TV paraded numerous guests/experts predicting a strong labor report yesterday. They cited smaller than than expected average weekly initial unemployment claims, smaller than expected layoffs, a better than expected ADP report, sunspots, you name it.

This morning's Employment report, despite the pre-game hype and routine statistical massages, was clearly weak.

For those that follow the Birth/Death Model (BDM), the following chart clearly illustrates how the BDM upwardly distorted the headline jobs number in 2008 and 2009.

Birth/Death Model (BDM) Contribution to Nonfarm Net Payrolls (NFP) Added/(Lost):

10% Unemployment? More 2+2=5. This number is so distorted, it can no longer be used for historical comparisons. For further discussion about this please review John Williams comments at shadowstats.com.

Civilian Unemployment Rate:

A better way to review the unemployment situation is the review job creation/destruction in terms of labor force expansion/contraction. Even this calculation is distorted by the BDM.

Job Creation Histogram (JCH): Net Nonfarm Payrolls Added/(Lost) less Civilian Labor Force Added/(Lost), 12 Month Average:

Source: finance.yahoo.com