John Williams on Lies, Damned Lies and the 7.8% Unemployment Rate

The Gold Report: John, as Mark Twain famously quipped, "There are three kinds of lies: lies, damned lies and statistics." The Bureau of Labor Statistics (BLS) just came out with new jobs numbers that show the country added 114,000 jobs since September and the unemployment rate dropped to 7.8%, down from 8.1% in August. On, you argue that the numbers are wrong and pointed to politics as a possible reason for the incorrect figures. Are unemployment statistics being manipulated and if so how?

John Williams: I normally put out a commentary on the numbers, and, in this one, I raised the possibility of politics as a factor. The problem is very serious misreporting of the numbers and the result is what appears to be a bogus unemployment rate. The BLS reported a drop in the unemployment rate from 8.1% to 7.8%, three-tenths of a percentage point, which runs counter to what is being experienced in the marketplace.

What few people realize is that the headline unemployment rate is calculated each month using a unique set of seasonal adjustments. The August unemployment rate, which was 8.1%, was calculated using what BLS calls a "concurrent seasonal factor adjustment." Each month the agency recalculates the series to adjust for regular seasonal patterns tied to the school year or holiday shopping season or whatever is considered relevant. The next month, it does the same thing using another set of seasonal factors. Rather than publish a number that's consistent with the prior month's estimate, it recalculates everything, including the previous month, but it doesn't publish the revised number from the previous month.

The assumption is that the monthly recalculations don't make much difference over time, but they do. The depth and the protraction of the current severe economic downturn have thrown off the annual seasonal-factor adjustments. The result is very volatile seasonal factors month-to-month. That means the new calculations for the September number may have resulted in a very significant revision to the August number. Again, though, the BLS doesn't publish that, so the headline August-to-September 2012 change in the unemployment rate is not consistent and not comparable. Last December, when the BLS put the seasonal adjustments on a consistent basis for the year, as it does once per year, the November 2011 unemployment rate had just been reported as showing four-tenths of a percentage point dropan unusually large monthly decline that never took place. When revised to a consistent basis, the drop in headline November unemployment revised to two-tenths of a percent. That is a big change. I think something like that happened here.

The BLS knows what the actual number is. It has an actual estimate for August, which is consistent with September, but it doesn't publish it because it says it "doesn't want to confuse data users." But it is putting out numbers that have no meaning month-to-month. One month before the election and a month after Federal Reserve Chairman Ben Bernanke announced Quantitative Easing (QE) 3, is not a time to have inaccurate numbers. The BLS should publish the consistent numbers now.

TGR: You have said that BLS has been using this recalculation method for years. Do you feel that this month the numbers were more skewed than usual because of the political timing?

JW: Because there is no transparency in the calculation and reporting process, it leaves open the possibility of manipulation. What has happened here, though, is that in the wake of the economic collapse, the seasonal factors have been heavily distorted and are not stable on a month-to-month basis. Where the concept originally might not have made that much of a difference, it does make a big difference now. I suspect that is why we woke up to such a screwy unemployment rate this time around.

The 114,000 jobs growth in the payroll survey (which reflects the number of payroll jobs, counting multiple jobholders more than once) also is suspect and subject to concurrent-seasonal-factor adjustments. There, however, the BLS publishes revised estimates for the two prior months that are on a consistent basis with the headline number. Nonetheless, jobs in even earlier months are not re-reported, although they too are recalculated each month, with the effect that jobs reported in earlier periods can be moved into present reporting, boosting the current numbers, without the related earlier changes being revised in the published historical numbers. Nonetheless, the purported 114,000 jobs gain was not statistically significant.

From the household survey, which gives us the unemployment rate and counts the number of people who are employed (multiple-job holders are counted but once), the headline gain in employment was 873,000, the largest seasonally-adjusted monthly increase since Ronald Reagan's first-term. That number clearly is nonsense and again suggests there is a severe problem with the seasonal factors.

TGR: Do you think the unemployment rate was manipulated on purpose or did the bad economy just make the reporting more confusing?

JW: It could have been manipulated. I do not know and do not have direct evidence of current political massaging of the data. I know for certain that there have been direct political manipulations by different administrations, since the days of President Lyndon Johnson, involving various data sets that have included the gross domestic product (GDP), the trade numbers and the employment and unemployment numbers.

From what I've seen of the Obama administration, the reporting has been reasonably clean. Nonetheless, at best, the administration is using seriously flawed data, and the reporting and calculation process has the potential for manipulation. The timing of the announcement of such a big downside swing in unemployment certainly is a fortuitous circumstance for the administration's political needs.

Main Street U.S.A., however, has a much better sense on the economic reality than do the government's economic statisticians. If the headline unemployment rate is not as advertised, a goodly portion of the public will not buy it. Past experience has shown gimmicked reporting often backfiring on the manipulators.

TGR: What is the correct unemployment rate? What would be a reliable data set?

JW: I don't know of one. The unemployment rate comes out of government surveying and data manipulation, and the base number is wrong. What are good in theory are the un-adjusted numbers, although unemployment definitions still suffer. Those don't get revised for the seasonal factors. But there you have regular annual patterns of economic activity, so you'll see the unemployment rate go up and down as it follows the normal flow of annual business activity through the various seasons. Even so, it makes some sense to look at that unadjusted series over time. The average person doesn't think of himself or herself as employed on a seasonally adjusted basis, but a lot of people, according to the government, are so employed.

If you surveyed everyone in the country as to whether he or she were unemployed, you'd get an unemployment rate above 22%, instead of the headline 7.8%. The difference is in how the government defines whether someone is unemployed, versus the view from common experience.

TGR: What are the ultimate consequences of inaccurate statistics on the stock market, commodity prices and everyday people?

JW: Right now, the impact of the unemployment numbers is mostly political, although the Federal Reserve has made it part of its targeting in terms of QE3. But the primary political concerns are on the impact to the upcoming election, which is what makes the timing of this release so suspect.

There is a serious problem with the reporting. If it has been used to manipulate the public, that eventually will come out. If it hasn't, the simplest thing is for the BLS just to publish the actual numbers. They have them. They don't have to do any recalculations. They've already done that. They just need to publish them in a timely manner.

TGR: There seemed to be an impact on the stock market. The Dow ended Friday up. Was that simply a coincidence?

JW: Yes, the market jumped all over the place. But I see no rationale whatsoever behind the movements in the stock market. Any numbers will be used to spin a story that will explain what's happening with stocks at a given point in time.

TGR: What about commodity prices? What will this do to gold?

JW: You had some sell-off in gold Friday. Again, that could all be spin. Was it due to people thinking Bernanke was not going to have to ease monetary policy as much? I'm not into day-to-day calling of the markets. The stock market is absolutely irrational. You can make up all sorts of stories based on that. Markets respond to lots of really worthless informationthe 114,000 gain in payrolls for example is not statistically meaningful. It could have been a contraction as well as a gain, when the 129,000-job margin of error is considered. Yet, the markets gyrate wildly over very small changes that have no relationship to what's actually happening in the economy. I think traders just love to trade. It's like going to the racetrack and betting on a horse because of how it wiggles its ears. It has little to do with the underlying fundamentals.

TGR: Is there an ultimate consequence of having faulty data? Do incorrect numbers build on themselves and become more inaccurate over time? Will we see a jump in the unemployment rate in December when they are recalculated after the election? Are there other consequences?

JW: When governments use bad numbers, and believe them, they don't respond appropriately to problems like unemployment and inflation. People don't properly target their investment returns or adjust their income projections. There are good reasons for having accurate information, but accurate numbers just are not coming out of the U.S. government at the moment.

TGR: You mentioned the correlation with the announcement of QE3. When we talked in May, you called QE "dangerous" and said it would eventually lead to a massive decline in the U.S. dollar, triggering new dollar selling and lead to dollar inflation, spikes in oil prices and eventually hyperinflation. Your special commentary on inflation and systemic conditions comes out next week on ShadowStats. Can we expect any good news?

JW: The outlook hasn't changed. I've been looking at this for a long time. Let me put it this way: The economy is not suddenly improving. Underlying fundamentals have not changed. You just are getting bad-quality numbers.

The average guy has a pretty good sense of what is going on. When Main Street suddenly starts getting jobs and businesses pick up, then we will know the economy is picking up. Shy of that, I'd be wary of anything I hear out of the government on business activity.

TGR: So the reports that we are in a recovery aren't accurate? What indicators should we be watching?

JW: Over time, you will find the better-quality statistics are confirming that we never had an economic recovery, and that we're not about to get one. When you have faulty numbers, you need to look at the underlying fundamentals to see what's happening. The problem is the consumer doesn't have the liquidity, either from the standpoint of income growth or credit availability, to sustain positive growth in the GDP.

TGR: Thank you for your time, John. We will check in with you periodically to see if you see any changes in those numbers.

nonfarm payroll data

Walter J. "John" Williams has been a private consulting economist and a specialist in government economic reporting for 30 years. His economic consultancy is called Shadow Government Statistics ( His early work in economic reporting led to front-page stories in The New York Times and Investor's Business Daily. He received a bachelor's degree in economics, cum laude, from Dartmouth College in 1971, and was awarded a Master of Business Administration from Dartmouth's Amos Tuck School of Business Administration in 1972, where he was named an Edward Tuck Scholar.

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7 thoughts on “John Williams on Lies, Damned Lies and the 7.8% Unemployment Rate

  1. Right on John,

    Looking at the USDL report, it is interesting to find 114,000 newly created jobs dropped the unemployment rate a very significant 0.3% (from 8.1 to 7.8%) which should translate to the basis for the labor pool (on which the unemployment number is based) being roughly 38 million (disregarding seasonal adjustments).

    Bearing in mind that half roughly half of workers pay no or minimal tax it would mean that approximately 20 million poor souls are lugging the load for the less fortunate who have no meaningful employment etc., etc. This is simply wrong and totally without merit since the report also list the civilian labor force at 155.1 million with a labor force participation rate of 63.6%. That should mean that 36.4% (56.5 million workers) are either unemployed, AWOL from their work stations and/or collecting some kind of Federal Reserve Confetti, which incidentally competes with our hard earned money for goods and services. How this is reconciled with the unemployment number based on 38 million is beyond the capability of anyone but the manufacturers of the numbers.

    Why the hell are we paying these people?

  2. Oh no, DonDurbin. Questioning the BLS numbers, from whatever political perspective, requires no right- (or left-) wing conspiracy, just a desire for accuracy in statistics.

    In this case, the culprit appears to have been an unannounced change in the reporting procedure that moved a large number of claims from one month to the next and a faulty seasonal adjustment. Now we have to see whether the missing claimants show up in next month's revision to the current report, where most people will never see them, or in next month's figures.

  3. Oh no John,
    The numbers have dropped even more. Applications for jobless benefits dropped 30,000 to 339,000 in the week ended Oct. 6, the fewest since February 2008. Must be a conspiracy right? The Obama administration got 30,000 people not to file for unemployment, right? The only politics involved here is the right wing questioning the BLS.
    Face the facts, the economy is improving and the lies that the GOP have been feeding their uneducated masses have been exposed. Rick Santorum had it right when he said that the really smart people will never be on their side.

  4. The Democrats and Republicsns are like two wings on the same bird, neither party is about to stop the foreign wars or end the control of the Treasury Dept by the banking cartel.

  5. Wow! and Obama accuses Mit with lying? First the Lybia embassy assault was only a mob, then Mit's main economic platform is" tax cuts for the rich," their main slogan to rouse the uneducated. Bush passed them in '03 and Obama continued them. But that was OK as he was the messiah! But if Mit wanted to continue them, suddenly he is a rich guy wanting to get tax cuts for himself, a slogan that has been repeated in every media. Now this sudden easing of the unemployment stats a few days after a bad debate. Obama and and his administration ought to be called the "great pretenders."

  6. What is the difference on how ADP, BLS, and Shadowstats calculate unemployment?
    Seems to me that ADP is always higher, BLS lower and Shadowstats trails the effect of gold.........

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