THE DAILY RECKONING PARIS, FRANCE

MONDAY, 6 AUGUST 2001

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*** Time to rethink the Reagan Era 'bias' factor? Unemployment numbers bushwhack the Dow...

*** Cisco may make numbers - but what about those write- offs? Dollar Demise...Time to go global!...

*** The "productivity miracle" was just a sick joke? Say it ain't so...tomorrow will be the final day of reckoning...(not for us, for the market)...

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*** Says the BLS...the unemployment rate in July held steady at 4.5%, but businesses slashed another 42,000 jobs during the month.

*** So what? Why do we watch these BLS numbers anyway?

*** Purportedly, as our friend John Mauldin points out, "unemployment is The Final Answer connection to consumer spending. Consumer spending is what is holding up the economy. As high consumer debt and unemployment problems wreak havoc on consumer spending, we will see the economy continue to weaken. This in turn is going to produce another round of negative earnings warnings and more heartburn for investors."

*** And "in the past 50 years," writes analyst Tony Glennon, "the US economy has never experienced a full 1% increase in unemployment without a full-scale recession..." As jobs go, so goes the economy. Easy enough, right?

*** Well, maybe not. Here's an interesting little observation from Bill King, a trader in Chicago: "In 1985, the Reagan BLS understood that white collar workers jettisoned by Fortune 500 companies were being assimilated into start-up enterprises - tech firms - or forming their own companies. The government could not count that type of job creation, so they had the BLS computer add 35,000 jobs/month to employment. This is the 'plug' or 'bias' factor - jobs the government can't count, but believe are being created."

*** Under Bush, The Elder, the 'bias' was increased to 55,000 jobs per month...and again under Clinton the bias was boosted to 155-165k. Where it remains today...

*** "We now have an environment where high tech jobs are being destroyed, not created, and the BLS computer still assumes 155k+ jobs are being created that they can't count," says King. "If job creation during a decade and a half boom couldn't be counted, how can BLS count job destruction in small entities?"

*** Hmmmnn... as Eric reports below, the BLS numbers had a negative effect on Friday's markets. What would happen, in this post-bubble era, if the BLS computers should delete X amount of jobs per month rather than tack on 150k?

Personal Note: Thank goodness the U.S. Govt tacks on that bias figure. We could be in a world of hurt without it. Lets see how those smoke and mirror figures help our economy.

-- Guy Daley (guydaley1@netzero.net), August 06, 2001

Answers

With this hocus-pocus I wonder how long it will be before the BLS numbers have no crediblity.

-- Uncle Fred (dogboy45@bigfoot.com), August 06, 2001.

I couldn't understand why the unemployment figures were not going up. Now it's clear.

-- Loner (loner@bigfoot.com), August 06, 2001.

This slight of hand, playing with figures, always amuses me. But, it works. This will fool all those people out there who have been told for so long that plastic is money. And, the band plays on. Forever on.

-- Big Cheese (bigcheese@multimax.net), August 07, 2001.