Birth/Death Model Discussion

Blame the birth/death model (BDM) for the revision. Built on years of research, the model’s key assumption is fairly simple: most of the time jobs created at new companies make up for losses at companies that close.

An nice review of the birth/death model for those that have followed the employment report here and jsmineset.com

In addition the commentary, many have suggest the BDM, as one of it's strengths, catch job creation that tradition collection methods miss during economic inflection points. In other words, it misses job losses, or overstates job creation, at the end of a business cycle.

The following chart illustrates the tendency to continue understate job losses by continue to forecast job creation during economic decelerations.

Birth/Death Model:


Also, while the BDM was forecasting job creation in 2008 and 2009, it was doing so as business, consumer, real estate, home equity, and other lines of credit for small business start-ups had peaked in 2008.

Breakdown of Total Bank Credit for all US Commercial Banks:


I submit that a model with such limitations, or assumptions with a clear bias should be left unused. This assumes, however, that this bias provide no inherent value to the employment data.

In a world run by spin and MOPE, I would not make such an assumption.

Source: bloomberg.com