BLS Unemplolyment Rate: At 7.8%, Could the Government Be Fudging the Numbers?

The Bureau of Labor Statistics released December’s unemployment numbers on Friday, which normally would be viewed with the same anticipation as watching paint dry. But as we’ve come to find the past several months, the unemployment rate announcement coming in at 7.8% has come to have the suspense of next episode of, Pretty Little Liars.

For much of 2012, America’s unemployment rate bounced between 8.3%, where it opened 2012 in January, and 8.3%, where it stood after July. With GDP limping along, there was no reason to hope business would go on a hiring spree significantly increasing employment.

Yet everything began to change when September’s BLS report was issued. Business Insider’s September 7 headline read, “Labor Force Participation Rate Falls to Lowest Level Since September 1981.”

It followed up in that article to document how the BLS had estimated 155,000 Americans had given up looking for work dropping the August unemployment rate to a four year low of 8.1%. Political cynics noted, this was not the type of news anyone planning to win re-election wants to hear.

Market analysts were put on edge. The unemployment rate had only dropped monthly three times in the prior six quarters by as much as two-tenths of a percentage. Private forecaster’s did not openly challenge BLS’s findings but noted they expected further revisions down the road. Yet the downward revisions never came.

Across the nation, BLS’ next report made headline news much the same way, as seen by this CNN article: “September jobs report: Unemployment rate tumbles" and went on to say, “The unemployment rate fell to 7.8% in September ... the same rate it was in January 2009 when President Obama was inaugurated.”

The big drop in the unemployment rate a month before the presidential election brought cries of disbelief. Disbelief was added to by conspiracy theories from Jack Welch, "Unbelievable jobs numbers ... these Chicago guys will do anything ... can't debate so change numbers," tweeted Welch, the former CEO of General Electric .

BLS, defended their September Unemployment estimate. They noted the drop was due to the Bureau of Labor Statistics' survey of households showing that 873,000 more people had jobs than in the previous month. That was the biggest one-month gain in nearly 30 years. Their follow-up on the household survey had shown an estimated 475,000 increase in employment from temporary positions.

Just days before the Presidential election, BLS released its report on October posting unemployment had ticked up to 7.9%. While only a minor change, the increase itself was not the news, it was the lack of revision anticipated to the prior numbers in September and August.

By November, a strong case could be made from sampling of state unemployment data that BLS’s household survey projection, while statistically plausible, had overstated new September employment by as much as 50%. Further U.S. Commerce Department data showed no increase in consumer spending for September which would have supported BLS hiring estimate.

Which brought us to the November jobs report headline from December, "Unemployment rate drops to 7.7%, lowest since 2008.”

The U.S. economy added 146,000 jobs in November. But the bad news was similar to what occurred in August: Unemployment dropped two-tenths of a percent because another 300,000 Americans stopped looking for work. BLS decision to again reduce the number of Americans looking for work by over 300,000 for the second time in four months raised the question: Why during even a slow recovery are so many people existing the workforce?

So as we awaited today’s release by BLS, the majority change in unemployment during the prior 12 months boiled down to a technical reduction in labor workforce participation of just under 1,000,000 for the year, combined with yearly new job creation of 1.8 million ... nearly enough to accommodate our growing workforce.

On Friday BLS estimated America’s unemployment rate for December to have been 7.8%. New job growth from the employer survey came out at 140,000+. BLS revised upward the November Unemployment estimate to 7.8%.