Nice weekend, eh? Nearly a quarter million new jobs added and the DOW up 1.5% in a single day. Good times, good times — or not so fast, writes John Crudele:
Last week I wrote that there was an excellent chance the April report would be good, mainly because of some optimistic assumptions Labor starts making in springtime.
Indeed, that was part of the reason why the April employment figures looked decent.
First off, a gain of 223,000 jobs is just OK, not great. And that figure included a guesstimate — before seasonal adjustments — that 213,000 jobs were created by newly formed companies that Labor can’t prove really exist. Without that assumption, which comes from something called the birth/death model, the April jobs report would have been worse than March.
Do any of those 213,000 phantom jobs really exist? Considering the fact that bankruptcies soared during the first three months of this year and that this trend probably continued into April, you have to wonder if Labor should have been subtracting jobs for the “death” part of the birth/death model, instead of adding them for newborn companies.
As I’ve been writing here for ages, the birth/death model is badly broken and based on assumptions about business creation which are no longer true.