Back when I was an engineering undergraduate student, one of my math professors used to distain statistics by saying that “in life there are lies, damn lies, and there are statistics”.  By this, he meant that you could mislead someone to reach an unsupportable conclusion via the clever use of statistics.

Case in point: a few weeks ago we had a headline report that the US unemployment rate fell from 9.5% to 9.4%. If that were true (fewer people unemployed), that would be a significant indication that things have stopped getting worse. Indeed, this is how the data was received by the markets.  How does an unemployment rate go down when almost 250,000 people lose their jobs in 1 month?  Answer: when you define the unemployment rate so that people that run out of unemployment benefits stop being counted. In this case 400,000 people gave up trying to find work and have used up their extended, extended, then extended some more unemployment insurance benefits. So 250,000 more people (than the previous month) were jobless + the 400,000 that gave up looking. Yeah, that’s reason to celebrate.

Only in the world of statistics could you paint a picture that things are getting better when indeed they are getting worse. Those 400,000 people are real, and will be an even bigger drag on the economy now that they will turn to desperate measures since unemployment benefits have worn out. To make things worse, the US economy needs to generate approximately 100,000 new jobs per month to keep track with population growth (& keep the employment rate steady).

What about the huge 6.4% productivity growth we saw in July?  6.4% is a stunning productivity growth figure. Based on the fact that there has not been a sudden introduction of new technology that swept the US (other than perhaps the new i-phone), we have to reach the conclusion that employees are working far harder and being more productive because they are concerned about losing their job.

A July survey of small business owners shows they are more pessimistic then in June. Small business owners are not going to rush into hiring when there is a nascent recovery. They will increase the number of hours of the reduced/part-time staff first. This won’t make a dent in the core unemployment data. This may be one reason that unemployment data is a “lagging indicator”.