Comments on: Return of the Kitchen Sink Stock Market http://www.fundmasteryblog.com/2008/06/06/return-of-the-kitchen-sink-stock-market/ Mutual Funds, Investing, Retirement, Economy, Personal Finance Thu, 20 Nov 2008 12:14:56 +0000 http://wordpress.org/?v=2.3.1 By: Kurt Brouwer http://www.fundmasteryblog.com/2008/06/06/return-of-the-kitchen-sink-stock-market/#comment-876 Kurt Brouwer Sun, 08 Jun 2008 07:06:12 +0000 http://www.fundmasteryblog.com/2008/06/06/return-of-the-kitchen-sink-stock-market/#comment-876 Penelope -- I think the unemployment rate was held down in March and April, but not due to fabrications. Rather, it was due to the nature of the employment statistical process itself. Remember, that the unemployment numbers come from the Household survey, not the Establishment (payroll) survey. Even though payroll jobs declined over the past few months, the number of workers seeking jobs also went down, so the unemployment rate fell. It did not make sense in the real world, but according to the Bureau of Labor Services methodology, it was valid. This month their method of seasonally adjusting for kids getting out of school and seeking jobs did not work either because school is getting out much earlier these days (starting earlier in the summer too). Whether that is absurd or not is a separate issue, but they did make this statement about the Household survey that was quite startling: '...The civilian labor force rose by 577,000 to 154.5 million in May, and the labor force participation rate edged up to 66.2 percent. Total employment was little changed at 146.0 million. The employment-population ratio, at 62.6 per- cent, also was little changed over the month...' The labor force rose by 577,000! Annualized, that's nearly 7 million. Yikes. Normally, the labor force grows by 1.5 million or so per year. So, obviously, something happened. Maybe the survey screwed up and those workers were there a month or two earlier or whatever -- I don't know. But, I do think 5% was too low last month yet I think 5.5% is too high this month. Penelope — I think the unemployment rate was held down in March and April, but not due to fabrications. Rather, it was due to the nature of the employment statistical process itself. Remember, that the unemployment numbers come from the Household survey, not the Establishment (payroll) survey. Even though payroll jobs declined over the past few months, the number of workers seeking jobs also went down, so the unemployment rate fell. It did not make sense in the real world, but according to the Bureau of Labor Services methodology, it was valid.

This month their method of seasonally adjusting for kids getting out of school and seeking jobs did not work either because school is getting out much earlier these days (starting earlier in the summer too). Whether that is absurd or not is a separate issue, but they did make this statement about the Household survey that was quite startling:

‘…The civilian labor force rose by 577,000 to 154.5 million in May, and the
labor force participation rate edged up to 66.2 percent. Total employment was
little changed at 146.0 million. The employment-population ratio, at 62.6 per-
cent, also was little changed over the month…’

The labor force rose by 577,000! Annualized, that’s nearly 7 million. Yikes. Normally, the labor force grows by 1.5 million or so per year. So, obviously, something happened. Maybe the survey screwed up and those workers were there a month or two earlier or whatever — I don’t know. But, I do think 5% was too low last month yet I think 5.5% is too high this month.

]]> By: Penelope http://www.fundmasteryblog.com/2008/06/06/return-of-the-kitchen-sink-stock-market/#comment-875 Penelope Sun, 08 Jun 2008 00:29:15 +0000 http://www.fundmasteryblog.com/2008/06/06/return-of-the-kitchen-sink-stock-market/#comment-875 Kurt, I agree fully with your conclusion that "the unemployment rate was artificially held down by statistical measures over the past couple of months". At the risk of sounding like a conspiracy nut, I find it very hard to believe that the unemployment rate truly jumped by 10% in the past 30 days (blaming the big increase on the kids graduating from school and looking for work is comical, putting aside that there are seasonal adjustments to compensate for that). It's much more plausable that the earlier numbers were understated and way off the mark. The payroll numbers are even more of a farce. They're completely fabricated and include huge adjustments to the data to make up for the sampling shortcomings and errors. No one who's ever dug through the underlying data would take them very seriously. http://www.bls.gov/news.release/empsit.t14.htm Kurt, I agree fully with your conclusion that “the unemployment rate was artificially held down by statistical measures over the past couple of months”. At the risk of sounding like a conspiracy nut, I find it very hard to believe that the unemployment rate truly jumped by 10% in the past 30 days (blaming the big increase on the kids graduating from school and looking for work is comical, putting aside that there are seasonal adjustments to compensate for that). It’s much more plausable that the earlier numbers were understated and way off the mark.

The payroll numbers are even more of a farce. They’re completely fabricated and include huge adjustments to the data to make up for the sampling shortcomings and errors. No one who’s ever dug through the underlying data would take them very seriously.
http://www.bls.gov/news.release/empsit.t14.htm

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