< HOME  Sunday, February 05, 2006

What you don't know, CAN hurt you

Two things that you need to know about the latest stellar employment statistics, straight from the horse's mouth:
Job gains occurred in several industries, including construction, mining, food services and drinking places, health care, and financial activities.
This signals an economy in steep decline. A nation cannot sustain itself on these 'types' of jobs.
[The employment report] presents statistics from two major surveys, the Current Population Survey (household survey) and the Current Employment Statistics survey (establishment survey).
And how reliable are these surveys?
BLS analyses are generally conducted at the 90-percent level of confidence.

For example, the confidence interval for the monthly change in total employment from the household survey is on the order of plus or minus 430,000.

Suppose the estimate of total employment increases by 100,000 from one month to the next. The 90-percent confidence interval on the monthly change would range from -330,000 to 530,000 (100,000 +/- 430,000).

These figures do not mean that the sample results are off by these magnitudes, but rather that there is about a 90-percent chance that the "true" over-the-month change lies within this interval.

Since this range includes values of less than zero, we could not say with confidence that employment had, in fact, increased.

If, however, the reported employment rise was half a million, then all of the values within the 90-percent confidence interval would be greater than zero. In this case, it is likely (at least a 90-percent chance) that an employment rise had, in fact, occurred.

At an unemployment rate of around 5.5 percent, the 90-percent confidence interval for the monthly change in unemployment is about +/- 280,000, and for the monthly change in the unemployment rate it is about +/- .19 percentage point.

[Surveys are also affected by nonsampling errors, including] failure to sample a segment of the population, inability to obtain information for all respondents in the sample, inability or unwillingness of respondents to provide correct information on a timely basis, mistakes made by respondents, and errors made in the collection or processing of the data.
What does all this mean? The 193,000 jobs they say were 'created' in January might just as well have disappeared!

So, I would hold off on busting out the bubbly OR heading for the stock market.


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