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VERSACE: More data revisions raise more concern

- The Washington Times - Friday, February 5, 2010

OPINION/ANALYSIS:

A few weeks ago I touched on how a simple revision in the data we as investors track can be restated and was once considered a positive data point can become the opposite.

One example I used was orders for durable goods and how the revision showed the data was weaker than previously thought. Another one that jumps to mind was the revisions in third quarter 2009 gross domestic product (GDP), which initially came in at up 3.5 percent but was revised downward twice by the Bureau of Economic Analysis until the final reading for the period was up 2.2 percent. Still positive, but not as strong as expected, and nearly all the strength came from government spending, not the private sector.

Well the bad news is, it looks like there is at least one more negative revision to come and this one concerns unemployment.

It's pretty widely known and accepted that jobs and job creation is on everyone's mind - as it should be. With one in 10 people unemployed per the official government data, it's not hard to see someone who does not have a job. If we instead expand our purview and examine the broadest measure of unemployment and underemployment tracked by the Labor Department, we find that all in all, more than one out of every six workers, or 17.5 percent, were unemployed or underemployed as recently as this past October.

Of course, that is the average rate and there are pockets across the country where the rate is even higher. Examples include California, Arizona and other states that had big housing bubbles, or states such as Michigan, Ohio, South Carolina and others that have a large manufacturing base.

We have been told President Obama is making jobs and job creation a top priority. With Thursday's initial unemployment claims coming in greater than expected, we can look back now and see the past four weeks of initial jobless claims have been higher than expected by 94,000 initial claims. In the abstract that may not sound oh so bad but let's put some perspective around it. The total number of initial unemployment claims in the past four weeks is 1.876 million. As such, that worse-than-expected amount of 94,000 claims equates to a miss of 5 percent. I'm not sure about most people but if 5 percent of my money was missing, I would want to know where I was off, especially if I was off several weeks in a row.

Well, in addition to the unemployment report for January, which is released Friday and slated to come in at 10 percent, which may now seem somewhat low, we will also be treated to the Bureau of Labor Statistics' annual revision of U.S. payrolls. This latest revision will cover April 2008 through March 2009 and the preliminary look shows nearly 824,000 fewer workers were on payrolls than previously thought.

Now again, let's put this into perspective - the Bureau of Labor Statistics previously calculated 4.8 million jobs were lost between April 2008 and March 2009; Friday's revision would increase this by more than 17 percent. Again, we have to wonder how and where the calculations have been changed because in years past this revision has typically resulted in a modest change to previous estimate of 0.1- 0.2 percent, not 17 percent.

Perhaps we should take pride in knowing that when we do miss, we miss big but I doubt this comes as any comfort to the millions of Americans who are still struggling through the current economic environment.

At a time when we are seeing frequent and in some cases large revisions to economic statistics released by the federal government, we need to look elsewhere for corroborating data points. It's not been hard to find ones that tell us how bad people across the country are hurting. Does this come as a surprise to anybody that has been watching the increase in people seeking help from food pantries, soup kitchens and shelters? Probably not.

During his recent State of the Union address, Mr. Obama talked of the importance of education. In light of the revisions we have seen and those yet to come it would seem that not only do we need to focus on education but also on some clear thinking. More of the same is not going to be much help be it for job creation, program spending or more data that needs to be constantly corrected.

Chris Versace is director of research at Think 20/20 LLC, an independent research and corporate access firm based in Reston, Va. He can be reached at cversace@washingtontimes .com. At the time of publication, Mr. Versace had no positions in companies mentioned. However, positions can change.