I returned this week from vacation to find the economic world still intact. What a relief. A couple of pieces of information that I wanted to share with you. First, the BLS reported that 146,000 new jobs were created last month. Of course, the announcement of this manipulated tidbit of information sent the markets up.
Here’s the whole picture that very few news outlets will tell. The BLS uses what they call a birth/death ratio to determine new job creation. This ratio supposedly helps with the statistical estimation of job loss or creation. It seems that in 2003, the Department of Labor started using a business birth/death model to adjust employment numbers. You can read all about it here.
As with all government data, these numbers are derived through statistical analysis and are subject to statistical error. This business birth/death adjustment is really of questionable accuracy as the only numbers collected involve business closings. This is from their website, they “use business deaths to impute employment for business births.” In other words, they have no idea how many new businesses are started each month or how many people these new businesses hire, but they are using business deaths in some way to estimate these numbers.
This adjustment over the last several months has helped the government to show a substantial increase in employment. If you back out the birth/death adjustment, you can get a better idea of just how many jobs are being created by this weak economic recovery. For example, Friday, the BLS reports that there were 146,000 new jobs created. If you subtract the birth/death adjustment, which was reported at 180,000 jobs, you find that we were actually in the hole by 34,000 jobs. It certainly isn’t as rosy a picture as the government would like us to believe.
They also reported that the unemployment rate fell from 5/1% to 5.0%. Don’t be fooled by this news. All it indicates is that the number of people applying for unemployment fell. If you have ever been forced to collect unemployment benefits, you are probably aware that your benefits only last so long. After that, no more money. When benefits run out for the unemployed, the BLS drops those people from their numbers. So when you hear that the unemployment rate fell, all you know for sure is that there are unemployed people who are no longer collecting benefits. It has nothing to do with new jobs as I explained earlier.
The other interesting fact comes from Germany. It seems that with gas prices once again hitting new highs here in the U.S. people are complaining that the oil companies are price gouging. Most Americans believe that there is no shortage of oil, but that OPEC and the oil companies are just out to make an extra buck or two…billion. Actually, oil prices are still below the highs of the 70’s on an inflation-adjusted basis. It just seems high. In Germany, diesel sells for $5.45 per gallon, regular unleaded for $6.00 per gallon, and premium unleaded for $6.59 per gallon. Imagine paying those prices every day. It would take over $160 to fill the tank of my pickup.
Stop for a minute and see if you can visualize what $6.00 per gallon gasoline would do to the economy. Try this, see if you can come up with one thing that you buy that would not be affected by high oil prices. Clothing? No. Food? No, you have to transport it. Cars? No, many parts are made of petroleum derivatives. Fertilizer? No. Herbicides? No. Almost everything we depend on to keep society functioning today depends in some way on petroleum. Kind of scary isn't it?
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