Every month, buried in the pages of the lengthy employment report, the Bureau of Labor Statistics presents the birth-death adjustment to account for jobs production by small businesses. Their intentions are good.
Small businesses continually rise and fall and the data-collection methods for the unemployment report just can’t keep up. Based on the historic averages, government economists guess how many jobs were created and lost by small businesses every month.
For the May report, they guessed that small businesses added 206,000 jobs. The increase is based on the assumption that the economy is doing well, and normal historical growth rates are allowing businesses to expand.
The reality is that credit is tight, and this is hurting small businesses. Consumer confidence is declining, which is in line with the fact that consumers aren’t seeing the growth they once did in the small manufacturers and Main Street shops that provide most of the country’s jobs.
And gasoline prices are high, which has an impact on spending, another factor that would hold job growth below historic averages.
During the past few months, estimates have shown that small businesses have been adding about 10 percent to 15 percent of the total jobs each month. For the May report, the estimate accounted for about one-third of the total growth in the work force. The BLS estimators proved to be the difference between a net decline and the reported net increase in the jobs report. Without the optimistic “guess factor” introduced by the birth-death ratio, the 54,000 increase in jobs most likely becomes a decline of about that many jobs.
For the next few months after the estimate is released, the BLS provides changes. During the past several months, those changes have been lowering the initial guess, and therefore lowering the number of jobs gained. Next month, they will probably decide that small businesses didn’t really create more than 200,000 jobs in May, and revise the number toward a more-reasonable estimate of what we’re seeing in the economy.
Employment was weak in May, according to the official reports.
Unfortunately, it is even weaker than reported if we don’t accept the optimistic guesses of the BLS.
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