How Manipulated are the Unemployment Numbers?

Last Friday’s unemployment report sent the stock market into a tail spin with the markets losing over 3%. Are those unemployment numbers accurate? Can the Government manipulate those numbers making them look a certain way? Well we will take a look at some funny accounting and what this might mean for your investments.

Friday was a tough day for Wall Street. The big economic news that rocked Wall Street was the unemployment report. There is always two parts to the report. First Wall Street looks at total jobs gained or lost. Then Wall Street looks at the unemployment rate.

The economy lost 49,000 jobs this past month continuing a string of job losses that started in January of this year. That was a mild number. In this type of environment, the numbers should be much higher.

It was the second number that really rocked Wall Street. The rate of unemployed Americans jumped ½% to 5.5%. That was the largest jump since 1986. That got the attention of investors because that was the first economic report that clearly demonstrated that this economy is looking recessionary. .

Ironically, economic weakness and job lay-offs have been embedded in this economy now for at least the past 8 to 9 months. In my opinion, the monthly job losses seem low.

Well you can thank your Federal Government for a little funny accounting. The Government figures in their own estimates as to how many jobs are gained or lost. They have a formula where they figure out how many jobs are created by new businesses that aren’t yet being counted. It is called the birth/death ratio.

Last year, it was reported that 1,096,000 jobs were created in the US. What was the Government’s contribution to that million plus job gain? The Government estimated that 1,130,000 jobs were created. If you take out the Government’s estimates, you then have a total job loss of -34,000 for 2007. Thus far this year, the Government has created 383,000 jobs and added them to the employment numbers.

According to the department of labor, 50,000 new construction jobs were created. I didn’t realize that construction was all of the sudden booming.

I often wonder, “What would it be like without Government intervention or manipulation or whatever you want to call it?” That will just have to remain a dream.