Was Jack Welch Right on Twitter? Are Unemployment Numbers “Unbelievable”?

Jack Welch on Twitter: Unbelievable Jobs Numbers

Unemployment Numbers “Surprisingly Good”-

On Friday October 5th, just two days after the first Presidential debate the Bureau of Labor Statistics released the unemployment data for September, which were “surprisingly good”. The experts were not expecting such a large drop. The Seasonally adjusted unemployment rate was 8.3% in July and had fallen to 8.1% in August and then the unemployment numbers for September came in at a shocking 7.8%.

Upon hearing these numbers, Jack Welch sent a Tweet from his Twitter account that has enraged Democrats. He said,

Jack Welch

  • @jack_welch
    Unbelievable jobs numbers..these Chicago guys will do anything..can’t debate so change numbers.

Jack Welch has an amazing resume,  the former CEO of General Electric, a best-selling author, lecturer at the MIT Sloan School of Management and the founder of the Jack Welch Management Institute, etc.

Media Pounces on Jack Welch for Twitter Comments

But of course, that didn’t stop the Media from pouncing all over him. Huffington post called his Tweet “Demented” and of course the White House  dismissed him as “ludicrous”.

“That’s a ludicrous comment. No serious person believes that the Bureau of Labor Statistics manipulates its statistics,” said Alan Krueger, chairman of the White House Council of Economic Advisers.

I don’t know where Mr. Krueger has been over the last 20 years, but John Williams of Shadowstats.com has made quite a name for himself disbelieving BLS numbers for some time now. And we have published several articles about how the Unemployment numbers don’t match up with the Employment numbers. See: Employment vs. Unemployment and Is the Government Fudging Unemployment Numbers? .  We published both of these articles long before the Presidential debate and Jack Welch’s Tweet.

As a matter of fact, James Dale Davidson founder of the National Taxpayers Union and author of Blood in the Streets, The Sovereign Individual, and most recently Brazil Is the New America: How Brazil Offers Upward Mobility in a Collapsing World wrote many years ago that he believed that Bill Clinton was fudging BLS numbers. So accusations of BLS fudging are nothing new.

As a matter of fact, it might be quite the opposite when it comes to Bureau of Labor Statistics’ inflation numbers…  does anyone actually believe the Government is telling the truth when it comes to inflation numbers?  See: Can We Trust Government Inflation Numbers?

But of course the BLS only fudges the Inflation numbers… they would never fudge the Unemployment numbers right?

The key question is: Are the Unemployment numbers really being fudged?

Well for many years we had no choice but to take the government’s word for it.  But today with the Internet at our fingertips we can do a bit of comparison.

First of all, let’s look at what are Jack Welch’s arguments for fudging?

Are they just the rantings of a “deranged” old man as the Huffington Post would have us believe?

Remember this deranged old man successfully  ran one of the largest companies on earth before his retirement. He might just know a bit more than a writer for HuffPo.  So what are Jack’s reasons?

  1. His intimate knowledge of 14 businesses shows no growth.
    “I’ve been reviewing 14 businesses all week, and not one of them is showing stronger growth in the third quarter than they did in the second,”
  2. Based on his analysis of the numbers,  a 7.8% Unemployment rate would indicate that the U.S. economy is growing at a 5% rate. (The economy grew the equivalent of 2 percent in the first quarter and only 1.3 percent in the second quarter).
    “It’s impossible that we can be running at a 5 percent [gross domestic product] growth rate, which is what this [7.8 percent] number is implying.”

Is it possible that the Campaign itself is the cause for a decrease in unemployment?

 The second largest monthly increase in history…

One possible explanation for the drop in the unemployment rate is that Obama has actually decreased the Unemployment rate…  although only temporarily. According to Deutsche Bank economist Joseph LaVorgna, “We have observed a large rise in part-time employment, which arguably hints of the sort of temporary, part-time hiring that is often associated with political campaigns, we also observed a large +368k increase in employment of 20 to 24 year-olds, arguably the demographic most likely to take part working on political campaigns. Indeed, we should note this was the second largest monthly increase in the history of this series.”

What do alternative calculations of the unemployment rate say?

Shadowstats

Shadowstats believes the entire system is rigged and the true Unemployment rate is really above 20%. Whether you believe Shadowstats premise or not, they are consistent in their methodology, and by looking at the recent data since 2010 we can see that the Shadowstats numbers are relatively flat while the BLS numbers are declining, indicating that some sort of fudging by the BLS may be going on.

Jack Welch Twitter Unemployment

Courtesy of ShadowStats.com

Gallup Polls

While the Bureau of Labor Statistics is saying that their unadjusted numbers are 7.6% and their “adjusted” numbers are 7.8% Gallup Polesters numbers are quite different. Unlike Shadowstats which disagrees with the entire methodology of calculating the unemployment rate, Gallup uses a very similar poling and calculation process and should therefore come up with similar numbers. But in Gallup’s poles we see both numbers are 0.3% higher than the government numbers. Where last month Gallup numbers and BLS adjusted numbers were identical and unadjusted numbers were off by only 0.1%. This month just after the debate and just before the election the BLS happens to deviate from the Gallup numbers significantly to the downside.  Hmmm. Maybe Jack Welch knows something HuffPo doesn’t?

Unadjusted Adjusted
BLS Gallup BLS Gallup
August  8.2%  8.1% 8.1% 8.1%
September  7.6%  7.9% 7.8% 8.1%

See  What is the True Unemployment Rate? for a comparison between the BLS numbers and Gallup numbers.

Does The BLS Employment statistics jibe with the Unemployment numbers?

Unemployment and Employment should be two sides of the same coin. If one goes up the other should go down and by the same percent.  But because the BLS uses two different surveys to calculate them we can use one to check the other.  See: Employment vs. Unemployment for more information about the correlation.

The BLS says Unemployment rate decreases to 7.8% in September; payroll employment rises by 114,000 is a 114,000 increase in jobs enough to drop the unadjusted numbers from 8.2% to 7.6%? I don’t think so!

The BLS says, “Total non-farm payroll employment increased by 114,000 in September. In 2012, employment growth has averaged 146,000 per month, compared with an average monthly gain of 153,000 in 2011.” 

According to that, the average increase was 146,000 per month, so September at 114,000 was way below average! So somehow a way below average increase in employment made a way above average decrease in Unemployment? Once again, I think not!

Employment Vs. Unemployment

 Jack Welch Unemployment Twitter

Looking at the above chart we see both sides of the employment coin. The blue line is employment and the red line is unemployment (inverted). We flipped the red line upside down so we can easily compare the two so they are both heading in the same direction. You can see that they generally track each other pretty well. But in the last two months we see something strange. Employment has increased very slightly while unemployment has fallen sharply.

How can this happen? Typically, employment has to increase sharper in order to make the unemployment rate move.  Something is wrong. We see another point on this line that has a problem as well. Back in April unemployment fell sharply (rising on the chart) but employment was rising less sharply. But then unemployment reversed sharply to bring them back in sync. Incidentally, this whole portion of the chart is probably fudged to a lesser extent. If you look at the longer term chart on Employment vs. Unemployment you will see that the gradually rising employment rate from 2010 until present should not move the red line as much as it does. The red line should be flatter over the whole period (just as shadowstats chart does) so we have the same fudging we see in the last two months on a bigger scale over this whole chart.

By just looking at the peaks in employment we get an unusually clear picture of the problem. Over the last year we have roughly the same number of people employed, the population has increased and the unemployment rate has fallen from 8.7% to 7.8%! That is impossible. Can’t happen unless a large number of people have dropped out of the employment pool. Also if we had 134 million employed in June and 200,000 less people employed in September how could the U-6 fall almost a full percentage point?

 

Date Employed

Adjusted

Unemployment Rate

U6
Unemployment
Rate

November 2011 133.172 Million 8.7% 15%
June 2012 134.057 Million 8.2%  15.1%
September 2012 133.797 million 7.8%  14.2%

The Conclusion:

Jack Welch is probably right, the numbers are being moved. That little increase in employment can’t reduce unemployment by 0.3% if it could we would be at 3% unemployment by now. But it might not be a purposeful data manipulation. It is possible that a factor like Obamacare is causing a shift in the number of part-time employees (reducing the number of hours worked per employee) so the number of part-time workers necessary is increasing. See Unemployment, Part-time Workers and Obamacare.

See Also:

Unemployment and Employment Charts

Will Big Bird Lose His Job?

Books by Jack Welch

More Books: The Twitter Book

BLS: Unemployment rate decreases to 7.8% in September; payroll employment rises by 114,000

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