On revisions, episode V

October 2, 2009 in Economics

This is a huge revision:

The so-called “benchmark revision” that was announced today will not formally be incorporated into the job figures until February, and could be revised. But the figures indicate that last March the government overestimated the total number of jobs by 824,000, or 0.6 percent. Its overestimate of private-sector employment was even greater — 855,000 jobs, or 0.8 percent.

It is most likely that the culprit is the infamous birth/death model that the BLS uses to adjust jobs numbers to account for businesses opening and closing. Unfortunately, the statistical model only works (to the extent that it works at all) in "normal" times; it is counterproductive when dealing with tail events. Sound familiar?

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