Friday, May 06, 2005

The BLS Employment Birth / Death Model

by Bill McBride on 5/06/2005 12:10:00 PM

In some net discussions, there appears to be some confusion over a component of the jobs report. Today's very good report had a headline number of 274 thousand jobs created in April.

Several places on the internet have pointed out that the birth / death model added 257 thousand jobs to the payroll report. Then they argue that 257K of the 274K were from estimated jobs created by new business. This is incorrect and is a lesson in mixing seasonally adjusted numbers with "not seasonally" adjusted numbers.

The headline seasonally adjusted number for April is 274K jobs. The not seasonally adjusted birth /death model (jobs generated by new business formations) was 257K.

The actual BLS reported jobs created in April was 1.179 Million (before seasonal adjustment). Of these 1.179 million jobs, 257K came from the birth/death model (or about 22%).

If you follow the link to the birth/death model you will see:

"Note that the the net birth/death figures are not seasonally adjusted, and are applied to not seasonally adjusted monthly employment links to determine the final estimate."
Finally, when the 1.179 Million jobs is seasonally adjusted you get 274 Thousand headline number.

Also note the BLS caveat:
"The most significant potential drawback to this or any model-based approach is that time series modeling assumes a predictable continuation of historical patterns and relationships and therefore is likely to have some difficulty producing reliable estimates at economic turning points or during periods when there are sudden changes in trend. BLS will continue researching alternative model-based techniques for the net birth/death component; it is likely to remain as the most problematic part of the estimation process."

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