Those highly questionable US employment gains (page 1 of 2)

I do agree that some businessmen (that is most of them) are not particularly honest and that lawyers need to twist the truth in order to get some of their guilty clients off the hook. We also know by now that the conduct of the military - irrespective whether it is made up by a bunch of terrorists or West Point graduates - is anything but honorable.

What still needs to be badly deflated is the faith people have in government - in particular the faith of investors in the accuracy of the statistics published by the government agencies needs to be badly shaken. In fact, I am a believer that governments from China to the US will endlessly twist statistics around to suit their political agenda, and worst of all, the public and the investment community then buys them.

I have a friend in the US, Bill King (billking@ramkingsec.com), who is an accomplished statistician and publishes a remarkable daily commentary for institutional investors on US the economy and the capital market. Bill King, with whom I recently had the pleasure to dine in Chicago, does not take figures published by the US government at face value, but analyses the details of the economic indicators in great details.

As an example he took, in early July, a closer look at the June employment figures, which showed that in June 146,000 non farm payroll had been created by the US economy. The first point he noted was that by itself the 146,000 job creation was a disappointment since 200,000 jobs had been expected.

In addition, this was the third consecutive disappointing non-farm payroll number. According to King, the Bureau of Labor Statistics (BLS), 'Net Business Birth/Death Model' created 184,000 FICTIONAL jobs (pls see tables at the end of this report).

These are fictional jobs jobs, which no one counts but are assumed by the BLS to have been created by small businesses (this practice of the BLS creating fictional jobs was introduced in 1996 under the assumption that employees who were laid off by large companies would start their own businesses and would go unnoticed by the BLS).

Also, what hardly anyone talked about was that, in June alone, the manufacturing sector lost 24,000 jobs, which was the fourth consecutive month of manufacturing job losses. Bill also notes that since August 2004, 96,000 manufacturing were lost.

Bill King also writes that the categories, ex-construction, where jobs were created, had lower income in June than in May. Leading job creation categories include: Construction 18,000, Professional and Business Services 56,000, Education and Health Services 38,000 and Leisure and Hospitality 19,000.

Moreover, according to King, 'Leisure & Hospitality once again provided most (81,000) of the BLS's Birth /Death fictitious jobs. These jobs, according to the BLS, earn $9.10/hr or $235.16/week. This is less than the $236.08 that was earned in May. An income decline also occurred in retail, another category that produces a large amount of jobs. Retail workers earned $12.32/hr in June or $379.46/week versus $380.99 in May.'

King then lists some additional earning declines in sectors that were producing jobs: 'Professional & Business service earnings fell to $610.47/week from May's $621.69. Education & Health Service income fell to $537.84/week from $541.19. Financial Service income fell to $636.51/week from $656.64.

In addition, the BLS report highlights the problem of the US economy. High paying jobs are being lost while low paying jobs are added.