The official unemployment rate is a lie. Again!
The markets are soaring and Trump is crowing, all because of an employment report that the Bureau of Labor Statistics openly admits in the report that it's hopelessly flawed.
In May, a large number of persons were classified as unemployed on temporary layoff. However, there was also a large number of workers who were classified as employed but absent from work. As was the case in March and April, household survey interviewers were instructed to classify employed persons absent from work due to coronavirus-related business closures as unemployed on temporary layoff.
However, it is apparent that not all such workers were so classified. BLS and the Census Bureau are investigating why this misclassification error continues to occur and are taking additional steps to address the issue.
If the workers who were recorded as employed but absent from work due to "other reasons" (over and above the number absent for other reasons in a typical May) had been classified as unemployed on temporary layoff, the overall unemployment rate would have been about 3 percentage points higher than reported (on a not seasonally adjusted basis).
However, according to usual practice, the data from the household survey are accepted as recorded. To maintain data integrity, no ad hoc actions are taken to reclassify survey responses.
So instead of the unemployment rate falling 1%, it actually rose 2%.
That's a massive difference.
Not only that, this undercount happened last month too.
Which explains why the BLS is already revising those past employment reports.
The change in total nonfarm payroll employment for March was revised down by 492,000, from -881,000 to -1.4 million, and the change for April was revised down by 150,000, from -20.5 million to -20.7 million. With these revisions, employment in March and April combined was 642,000 lower than previously reported.
You can bet that this won't be the last revision down.
And then there is the fictional Birth/Death model.
Business births and deaths cannot be adequately captured by the establishment survey as they occur. Therefore, the establishment survey estimates use a model to account for the relatively stable net employment change generated by business births and deaths. Due to the impact of the COVID-19 pandemic, the relationship between the two was no longer stable in April.
According to the BLS's Birth/Death model, a record 345K new jobs were created due to new businesses opening in a month when the US economy was largely closed!
Exactly how likely is that?