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Subject:  Re: 7.8%: Cooked? Date:  10/5/2012  5:08 PM
Author:  zoningfool Number:  106887 of 165982

Some over at Pimco are suspicious of the numbers--in an interview on CNBC this afternoon--Pimco's Mohammed El-Erian was asked about possible shenanigans with the unemployment numbers--while he himself was not calling their validity into question, he admitted some of those who work at Pimco--whose job it is to scour the data--had serious concerns about the unemployment figure--mentioning concerns regarding gov't employment specifically--reflecting these concerns he stated: "isn't it peculiar that they (the numbers) are doing that now". Here's part of the transcript--note the bolded portion:

...there's job growth. we find out what that number is. that is what leads to the unemployment number. but they're completely disconnected. we really see that today. jack welsh says there's a problem with the voracity of these numbers. i think what we're seeing is just a reality from month to month. over time they tend to converge. in any one month, you do get differences. this month is one of them. are they open to manipulation? i don't buy the conspiracy theory. there are certain people at pimco who do. i respect their point of view. this is just what happens when you have two different ways of collecting data. 115,000 jobs is certainly nothing to get excited about. the number is anemic. certainly not a bullish call. if you're going to fake the number, you do it big. absolutely. that's why i don't buy into it. you're just picking up the issue. it's a key element for the market. so step back. why is the market not as enthusiastic as some people would like it? because it realizes that we need to pivot. so far we've had a correct rally based on chopping off the tails of catastrophe. between what the fed has been doing and what the ecb has been doing, that has reduced the tail risks in the short term. in order to keep going, we need to hand off to fundamentals. today's employment report, while better, is not strong enough for that hand off.

cnbc: can i follow up with something you said earlier? you said there are other people at pimco who do believe it's a possible conspiracy theory. tell me more about that. is that bill?

el-erian: no, some other people on the trade floor. we go into incredible detail on this report. some say, hey, wait a minute, how could you have government jobs doing what they're doing? isn't it peculiar they're doing that now?


Unemployment rate 7.8%; Unemployment rate contradicted by job growth report

Today’s unemployment report met the political threshold set by Obama of being below 8 percent.

To reach this threshold, the Labor Department’s Bureau of Labor Statistics found that an astounding 873,000 people found full-time jobs last month. This finding contradicts virtually every other economic indicator including those used by the Federal Reserve to take the immediate and unprecedented step to embark on the Quantitative Easing 3...

Additional evidence that the data used to determine the unemployment rate is not valid can be found in the Bureau of Labor Statistics report on the number of actual jobs created. This report shows only 114,000 jobs created including an increase of 10,000 government workers.

Either the Federal Reserve, which has its fingers on the pulse of every element of the economy, and the Bureau of Labor Statistics manufacturing survey report are grievously wrong or the number used to calculate the unemployment rate are wrong, or worse manipulated. Given that these numbers conveniently meet Obama’s campaign promises one month before the election, the conclusions are obvious.

“It appears that Obama has hired infamous Iraqi Information Minister Baghdad Bob to calculate the unemployment rate. Anyone who takes this unemployment report seriously is either naïve or a paid Obama campaign adviser,” says Americans for Limited Government Communications Director Rick Manning, also former Public Affairs Chief of Staff at the U.S. Department of Labor.

Even assuming there were no manipulations:

... if one very simplistically tracks merely the unemployment rate to jobless claims, the picture does indeed seem rosier than it currently is. The problem however, is that as always happens in this case, initial claims reflect only a discrete component of the true unemployment situation in the New Normal, which more than anything is characterized by one specific feature: the avalanche like implosion of the labor force, and the departure of millions of people, almost monthly from the labor pool, noted so very often on these pages, and recently forcing even Goldman and JP Morgan to ask whether Okun's law is not in fact broken precisely because of this.

As such there is one other correlation that in our humble opinion should be tracked far more closely when trying to anticipate the unemployment rate: that of the unemployment rate but not just to initial claims, but rather to initial and continuing claims, as well as extended benefits and EUCs, which provide a far better picture of those who are truly falling out of the labor pool.

And... when using that far more accurate New Normal correlation, the picture is decided worse. In fact, instead of a sub-7% implied unemployment rate, the true implied unemployment rate is just over 12.5%, precisely in line with our calculations if one assumes a historical labor force participation, instead of using election year gimmicks to paint the economic tape....
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