Cookin’ jobs numbers? Crazy talk from Jack Welch

REUTERS/Lucas Jackson
Former GE CEO Jack Welch accused professional economists of either conspiring with or bowing to pressure from political operatives to manipulate fundamental data about the U.S. economy.

Jack Welch, former CEO of General Electric, set off a firestorm last Friday with a single tweet:

Unbelievable jobs numbers..these Chicago guys will do anything..can’t debate so change numbers

Then U. S. Rep. Allen West chimed in: “I agree with former GE CEO Jack Welch, Chicago style politics is at work here. Somehow by manipulation of data we are all of a sudden below 8 percent unemployment, a month from the Presidential election.”

This is crazy talk. Here’s why.

The Bureau of Labor Statistics (BLS) collects and processes the data that underlie the monthly jobs report (most recent release is here). BLS staff members are civil servants who serve without regard to party and are insulated from political manipulation. 

This National Public Radio piece and this Washington Post article make clear how the BLS goes to great lengths to protect the data after it is collected and while it is processed.  It’s critical that they do so because early access to the jobs numbers could, for example, affect financial markets.

Similar procedures are in place for data such as Gross Domestic Product, which is collected and analyzed by the Bureau of Economic Analysis

As I discussed in an earlier post, the BLS collects its data through two surveys, one of households and one of businesses. The data rarely match up — the definitions of employment used in the two surveys differ — but they tend to show the same trends.

The September jobs report was pretty typical. Both surveys indicated private-sector job growth and public-sector job losses. The 114,000 jobs gained according to the business survey were in line with most economists’ expectations, especially given the second quarter’s anemic GDP growth rate of 1.3 percent.

Household survey

So, what was Jack Welch’s problem? The controversy focused on the household survey: It showed employment increasing by 873,000 during September and the unemployment rate falling from 8.1 percent in August to 7.8 percent.

These are big changes, but they are not at all strange or inexplicable.

First, the increase in employment is probably driven by the fact the data are seasonally adjusted by the BLS. My colleague John Olson has a nice description of this process. We know, for instance, that high school and college students leave their jobs when school is approaching. Typically, they leave at the end of August and beginning of September, so the data are adjusted to take this into account.

However, it looks like this pattern is starting to change and students are leaving their jobs earlier due to more schools staring in late August or because of students’ desire to have more vacation time. It turns out that when this change is combined with seasonal adjustment, the August numbers will be under-reported and the September numbers will be over-reported.

This is just one example of a more general problem: Our seasonal adjustment procedures might be messing up the numbers. This seems likely given that employment was virtually unchanged in August and jumped in September. 

Survey data

Second, the unemployment rate is derived from survey data, which means that there is a margin of error. For example, the August unemployment rate was 8.1 percent, with a margin of error of plus or minus 0.2 percentage points. That is, the BLS economists are quite confident that the unemployment rate was between 7.9 and 8.3 percent.

Now, let’s look at the September rate. The 7.8 percent figure could represent a “true” rate as high as 8 percent or as low as 7.6 percent. The result is that the true rate might have been 7.9 percent in August and 7.8 percent in September, which isn’t much of a change. We just can’t tell given our survey data.

Welch came back in The Wall Street Journal on Wednesday with a column headlined “Why I Was Right About That Strange Jobs Report.”  He makes himself out to be a victim, writing, “Imagine a country where challenging the ruling authorities — questioning, say, a piece of data released by central headquarters — would result in mobs of administration sympathizers claiming you should feel ‘embarrassed’ and labeling you a fool, or worse.”

Economists question data all the time. That’s why the BLS releases regular revisions to the figures; they collect additional information, perform more tests to make sure that their procedures are correct, and generally try to improve the numbers. We implicitly carry around a “handle with care” sign in our heads whenever we work with this stuff.

That’s not what Jack Welch did. He accused professional economists of either conspiring with or bowing to pressure from political operatives to manipulate fundamental data about the U.S. economy. He provided no evidence to back up his charge but simply smeared professional economists for no reason.

I’m sorry, Mr. Welch, it’s not a conspiracy. It’s just statistics.

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Comments (11)

  1. Submitted by Paul Udstrand on 10/11/2012 - 10:32 am.

    Typical

    Welch is another example of executive mediocrity in the US. Although I’m sure he’s familiar with the practice of cooking data for short gain and illusory gain.

  2. Submitted by Dennis Tester on 10/11/2012 - 11:03 am.

    This goes back to the changes in the welfare law

    When Obama changed the work requirement in the welfare law back in July by giving states the right to redefine work to include doing chores around the house, volunteering at church or going to fitness classes, Romney and republicans in congress were outraged because they assumed it was done to loosen the requirements for welfare … work requirements they hammered out with Clinton back in 1996 in the landmark welfare reform agreement.

    But as it turns out, the change in the definition of work was really all designed to pump up the numbers of people responding in the affirmative when the BLS called and asked them if they were “working.” Mowing your lawn now counts as working.

    So now when the household survey is conducted by the BLS, instead of only an additional 114,000 people saying “yes, I am now working,” 873,000 new people were now considered to be “employed.”

    This outrageous scam is only surpassed by a press willing to sacrifice whatever credibility they have left to go along with it.

  3. Submitted by David Frenkel on 10/11/2012 - 11:15 am.

    Jack and GE

    Jack obtained his fame at GE at a time when the economy was doing well and most US industrial companies were doing well including GE. He took a concept developed by Intel, SixSigma, and became an evangilist for it. It was interesting when Allied Signal purchased Honeywell, Honeywell’s brand was more important than SixSigma. Allied Signal was renamed Honeywell who at the time was not involved with SixSigma.

  4. Submitted by Thomas Swift on 10/11/2012 - 12:26 pm.

    Maybe I’m missing something

    Or maybe the Obama cheering squad is, but isn’t it a fact that people that have thrown in the towel on looking for work are stricken from the survey data?

    That is to say the BLS doesn’t consider them unemployed.

    Talk about crazy…

    • Submitted by Steve Titterud on 10/11/2012 - 02:46 pm.

      Yes, you are missing something

      The BLS stats include 6 different unemployment numbers, U1 through U6. You can see all 6 in the document linked in the story above. See page 26 in that document for a fuller picture of unemployment in the U.S. at this time.

      Many have argued for a long time that U6 is a better indicator of the extent of unemployment, but you will rarely see it quoted anywhere. The argument against U4 – U6 is that these numbers rely in part on estimates and inferences to a greater extent and therefore may not be as reliable.

      The unemployment number that is almost universally quoted is U3. THAT is the one quoted here, and it excludes the long-term unemployed, as always. You’ll find that U4, U5, and U6 are all higher, and that each of these has shown some improvement over that last year. U6 shows 14.7% in that table at this time.
      The BLS, the various arms of government, and the media have been quoting only U3 – forever. U4, U5, and U6 don’t look so pretty.

  5. Submitted by Greg Kapphahn on 10/11/2012 - 02:16 pm.

    It has Always Been the Case

    That people who have temporarily given up looking for work are excluded from employment data (though they are reflected in data which defines the current size of the workforce). Thus that reality is not relevant to any honest evaluation of the current job figures.

    It would be useful if some of those among us, on whatever side of the political spectrum, would be able to recognize their own hypocrisy in complaining about how government data is collected and analyzed ONLY when the conclusions drawn,…

    by exactly the same people using exactly the same methods,…

    don’t serve the needs of their own political side.

    It’s interesting, of course, that those most bitterly speculating about the Federal Government Analysts’ “cooking the books” in favor of the Obama administration seem to be making that claim based on their own, well-documented tendency to demand (successfully) that the financial staffs of the companies they ran cook the books in whatever ways best served increasing their own wealth at the end of each quarter.

    For such folks, the majority of US business CEOs it’s long been clear that concerns about maximizing their own income trumped honesty, integrity, and accuracy at every turn.

    Assuming as Rep. Mary Kiffmeyer commented the other day, that they are surrounded by “liars, cheaters, and stealers” our wealthy “conservative” friends seem delighted to join and feel completely justified in joining the ranks of those they claim to despise.

  6. Submitted by Bill Gleason on 10/11/2012 - 02:45 pm.

    I guess you missed the point of the post, Mr. Swift

    Jack Welch claimed that the Chicago gang had cooked the books.

    That was a lie.

  7. Submitted by Rich Crose on 10/11/2012 - 03:24 pm.

    Numbers are Boiled Down not Cooked

    Count the amount of time it takes to get downtown during rush hour. 11 minutes in 2008 when Obama began. 19 minutes this morning. No accidents, no incidents, just more cars. Those are people going to work. By this measure, the numbers are under-reported.

  8. Submitted by Ray Schoch on 10/11/2012 - 03:33 pm.

    Interesting theory

    Just out of curiosity, mind you, I’d love to know the sources that support Mr. Tester’s assertions.

  9. Submitted by Gerald Abrahamson on 10/15/2012 - 11:45 am.

    Year Real UE Employed1971

    Year Real UE Employed
    1971 5.9% 71335
    1972 5.0% 73798
    1973 2.9% 76912
    1974 4.2% 78389
    1975 11.1% 77069
    1976 9.8% 79502
    1977 7.9% 82593
    1978 4.5% 86826
    1979 3.0% 89932
    1980 5.9% 90528
    1981 7.6% 91289
    1982 13.2% 89677
    1983 14.4% 90280
    1984 10.2% 94530
    1985 7.1% 99474
    1986 6.3% 102088
    1987 4.4% 105345
    1988 3.1% 108014
    1989 3.4% 109487
    1990 6.4% 108374
    1991 9.0% 108726
    1992 9.5% 110844
    1993 7.7% 114291
    1994 6.1% 117298
    1995 5.3% 119708
    1996 4.3% 122776
    1997 2.9% 125930
    1998 1.7% 128993
    1999 0.9% 131785
    2000 0.7% 133785
    2001 4.3% 131826
    2002 7.9% 130341
    2003 9.7% 129999
    2004 9.6% 131435
    2005 8.9% 133703
    2006 8.1% 136086
    2007 8.4% 137598
    2008 11.3% 136790
    2009 19.5% 130920
    2010 21.4% 130920 (to be adjusted)
    2011 22.0% 130920 (to be adjusted
    2012 21.5% 130920 (to be adjusted)

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