Is Karl Denninger's Correct Adjustment Method for Analyzing BLS Data Valid?

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Discussion Overview

The discussion centers on the validity of Karl Denninger's "correct adjustment" method for analyzing Bureau of Labor Statistics (BLS) unemployment data, particularly in relation to seasonal adjustments and population growth. Participants explore the implications of these adjustments on the interpretation of employment statistics.

Discussion Character

  • Debate/contested
  • Technical explanation
  • Conceptual clarification

Main Points Raised

  • Some participants note that the monthly unemployment data is an estimate that may change over time, with concerns about the accuracy of Denninger's claims regarding labor force exits.
  • It is suggested that accounting for population growth is necessary, with some participants proposing that around 100,000 jobs need to be created monthly to keep pace with new entrants to the labor force.
  • One participant argues that Denninger's assertion about the current month's data being particularly bad is incorrect, stating that fewer job separations and more job openings indicate positive trends.
  • Another participant challenges Denninger's method, claiming it confuses the issue by presenting various numbers and suggesting that the unemployment rate may be worse than reported, particularly when considering the U6 measure.
  • Concerns are raised about the employment ratio not accurately reflecting the impact of retiring baby boomers on labor statistics.
  • Some participants express skepticism about the BLS's methods, arguing that while not perfect, they have historically provided a reasonable representation of employment trends.
  • It is highlighted that the unemployment rate does not account for individuals who have stopped looking for work after their benefits expired or those working part-time jobs that do not provide a livable wage.

Areas of Agreement / Disagreement

Participants express differing views on the validity of Denninger's adjustment method and the interpretation of BLS data. There is no consensus on whether Denninger's approach is accurate or whether the BLS's reported figures adequately reflect the employment situation.

Contextual Notes

Participants acknowledge limitations in the current methods of measuring unemployment, including the effects of population growth and the retirement of older workers, which may not be fully captured in the statistics.

Museigen
BLS has released data on unemployment for the month of January.
Nonfarm payroll employment rose by 243,000 in January, and the unemployment rate decreased to 8.3 percent. Job growth was widespread, with large gains in professional and business services, leisure and hospitality, and manufacturing.
http://www.bls.gov/news.release/pdf/empsit.pdf

What I want to ask about is a blog from Karl Denninger on market-ticker.
http://market-ticker.org/akcs-www?singlepost=2858099

He states that he used the "correct adjustment" and I just wanted to know if it was valid.
But the correct adjustment is to look at the population increase and subtract that back off as well.

Not sure if this is valid and I am very uneducated on this subject and trying to learn. Just need some input. This is from a very conservative blog, but my question is about the math and method behind the seasonal adjustment. If it's in the wrong forum, I apologize.
 
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First- you need to know that the monthly data is an estimate that probably will change with time. The only blip Denninger seems worried about is the people leaving the labor force. That might be revised down.

Now, Denninger is right in that we need to account for population growth- on average we need to create at least 100k jobs a month to keep up with new people entering the labor force. He is also right that people have been steadily exiting the labor force- as people spent more and more time unemployed eventually they gave up.

Where Denninger is wrong is that this month was particularly bad- fewer job separations and more jobs openings is ALWAYS better than the opposite. This data IS good news. Now, is it enough? Probably not- at this rate it would take a decade to get back to full employment, which is a long, long time.
 
Museigen said:
BLS has released data on unemployment for the month of January.

http://www.bls.gov/news.release/pdf/empsit.pdf

What I want to ask about is a blog from Karl Denninger on market-ticker.
http://market-ticker.org/akcs-www?singlepost=2858099

He states that he used the "correct adjustment" and I just wanted to know if it was valid.


Not sure if this is valid and I am very uneducated on this subject and trying to learn. Just need some input. This is from a very conservative blog, but my question is about the math and method behind the seasonal adjustment. If it's in the wrong forum, I apologize.

To answer your question as directly as possible, no it is not accurate. There is very little more I can say. He is constantly trying to confuse the issue, by throwing out lots of different numbers. Unfortunetly there is no perfect way to judge unemployment, or employment for that matter.
The simple truth is that the unemployment rate should probably be worse then it is, but not nearly as bad as the U6 number. Looking at the employment ratio is not very accurate either as it doesn't account for how many people are retiring, and in the coming years, as more baby boomers retire, the number should naturally go down from previous rates.
The number thrown out by the BLS is somewhat accurate, it is the same method they have used for as long as I can remember, so why are they getting mad about it now? Simply because it is not giving them the numbers they want. Overall it does a decent job at flattening out the non-seasonally adjusted spikes and valleys. Is it perfect? Nope, but it is decent.
As PartcleGrl pointed out, it does not take into account for population growth. Actually I believe her numbers are a little low, I think the real number is about 150k a month (lately), even that might be a little low as some people might be pushing off entering the work force, instead opting to go to college, because of the poor economy. If memory serves me correctly, before the recession it was closer to 175k people entering the workforce each month.
 
Lowering the unemployment rate is not the same thing as raising the employment rate.

It does not take into account:
1. People whose unemployment benefits ran out and stopped looking for work are removed from the unemployment.
2. People who are working part-time, but aren't really making a livable wage.