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What Good Is the Jobs Number?

Measuring payrolls and counting job seekers can move markets. But the result rarely gives a clear picture of the economy's health.
Employment office
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When the Bureau of Labor Statistics reports Friday on how many jobs the economy gained or lost in August, there's one thing we can be sure of: A complete lack of agreement on what the numbers actually say about the health of the economy.

Even though businesses have been shedding jobs since December—and the unemployment rate has risen 1.3 percentage points since last March to 5.7 percent—a group of vocal economists, analysts, bloggers, and journalists have argued that the employment picture is even worse.

The reason, these critics say, is that the way government statisticians calculate how many jobs are created by new businesses and destroyed by dying firms is flawed and is no more than an educated guess.

The B.L.S. has two ways of calculating how many jobs are gained or lost each month. The method preferred by most economists is a survey of 150,000 businesses across the country. The problem here is that the bureau does not have a way of detecting when an entrepreneur has started a business (which creates jobs), or when an old firm has closed (taking jobs with it).

As a way around this, the B.L.S. introduced what it calls a birth-death model in 1999. It uses historical data and fancy equations to estimate the number of jobs added and lost by new and dying businesses. But the model typically spits out a positive number, leading critics to charge that it doesn't know how to handle a downturn.

This may well be true, but other data point to benefits from using the model.

Once a year, the B.L.S. releases a benchmark revision which is a much more accurate tabulation of the number of jobs in the country. This revision draws on records of the number of employees covered by unemployment insurance.

The B.L.S. says these records cover an impressive 98 percent of all nonfarm jobs. A revision based on this data is much more likely to reflect the real employment situation.

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