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Friday, October 5, 2012

Workers Going To Sidelines, Wait For Election Result

JUST IN -- The official headline unemployment number dropped for the first time in years to under 8%, but underlying data are very troubling for the American economy.  Nonfarm payrolls "rose" less than expected, 114,000 in September (ahem, in seasonally adjusted numbers), or basically an amount that is covered by government estimates of the number of business births and deaths (the "birth/death" model).  And the largest sector of job growth is in part-time workers (up by more than 500,000), indicating that full-time jobs previously lost have now been replaced by part-time (or temporary) jobs.  Moreover, the U-6 employment figure which measures underemployment has remained steady, validating this indication.

A major mistake in the employment figures may come from the use of the birth/death model.  The birth/death model's flaws alone may account for the purported job growth. (Remember, we are five weeks before an election, and adjustments and corrections can always be done after the votes are counted.)  The birth/death model erroneously believes that a job is created every time an entity is incorporated or formed under a state's corporate law. However, this is demonstrably untrue. Many entities are formed by individuals to escape personal liability, and sometimes multiple entities are formed by the same person for purposes of limiting liability and asset protection. There's no job creation there. Moreover, businesses are measured to "die" through entity dissolutions or charter revocations. But these events are lagging indicators. Businesses that fail, that close down, rarely file documents to dissolve the legal entity until years after they stop operating. One reason is that failed businessowners are often seriously demoralized and ignore this process. The other and better reason is that, until a full financial winding down is done, well after the time the business stops operating, the entity should be maintained for precisely the asset protection reason cited above. But no matter what the reason, the phenomenon is the same, and the number of business deaths is thus both understated and lags true business closings by years!

By the way, if you go to page 11 of the actual government labor statistics report you'll see that non-seasonally adjusted figures show that the "civilian noninstitutional population" grew by nearly one million people more than the growth in employment on a year-over-year (September 2012 vs. September 2011) basis. In other words, the population growth is outpacing the growth of the economy. That is not good. No matter how you slice it.  

Eric Dixon is a New York corporate and investigative attorney, strategist and policy commentator.

1 comment:

  1. It is my sincere wish that this information could be more widely disseminated