A few weeks ago, I began to discuss the main sources from which investors draw information:
1. Wall Street
2. The government
3. The media
4. Independent analysts
This series of articles is meant to help individual investors better understand where the information they use comes from, and to show how that information cannot always to be taken at face value. We’ve already covered why you can’t trust Wall Street (see Don’t Buy Into Wall Street’s Bull …), so today I’ll tackle the U.S. government.
I do not believe that the U.S. government is as blatantly conniving in their skewing of data as is Wall Street. Nonetheless, they are equally guilty of bending the news to fit their agenda and to hell with the truth.
As self-directed investors taking care of our own money, we must be able to not only read the information we are given, but to read into the information we have been given. The fact is that most information is skewed to the specific agenda of the source putting it out, in order to advance the source’s own self interest. So, we need to filter this tainted information to find the real information that can actually be useful to us.
While there are tons of examples of the government bending the news to suit them best, let’s take a look at an example that appears pretty heavily in today’s market: The all-important jobs numbers — specifically, the unemployment report.
The first thing we must look at is how the unemployment number is calculated. The two critical concepts are:
1) How we calculate how many people are considered to be employed.
2) How we calculate the size of the workforce.
Part of the government’s bending of the news is in how the number is calculated.
In just the past two months we have witnessed this economy shed nearly 100,000 jobs, yet the actual unemployment rate went down!
How is that possible? If we lose more jobs, how can the percentage go down or stay unchanged? We have seen the rate above 10% earlier in the year and haven’t created a single job since, yet the rate is lower. What gives?
How the Government Calculates the Workforce
Well, in order to make the percentage go down, we would need to take unemployed people out of the workforce.
So, the workforce is defined as those people who are currently employed or people who the government determines are actively seeking employment. The way the government decides this is by stating that anyone who is unemployed for a year or more is considered to be not actively seeking employment, thus that person is pulled out of the workforce number.
So, suddenly, an unemployed person is taken out of the calculation. These people drop off the workforce and, for all intents and purposes, are no longer considered unemployed. In this way, as more people lose their jobs, they are offset by unemployed people falling off the back-end of the workforce, holding the unemployment rate stable or possibly even lowering the number.
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Now, I understand what the government is doing here. I truly believe that if the person is unemployed for a specific amount of time in an ordinary economic situation, then that person is probably not looking too hard for a job and should be pulled out of the workforce.
But, in a time like this, with a recession that is being compared to the Great Depression, a person could very easily be aggressively looking for a job and not find one. In this scenario, this specific time period that a person remains unemployed must be extended, and that unemployed person should remain part of the unemployment calculation.
The funny part here is that government obviously agrees with me that this recession has brought about a difficult job market. They’ve even gone so far as to extend unemployment benefits from 26 weeks to encompass up to about 76 weeks.
Yet the unemployed person still falls out of the workforce after a year. Funny how the government extends the benefits but does not extend the length of life on the workforce. Sure seems to favor the unemployment number staying low.
So, the government can bend the unemployment rate by tweaking either number in the calculation, or both. But that’s not even the extent of their manipulation. There are also the revisions.
The Employment Facade Thickens
Now, the government can put forth a number that you want to hear or, more precisely, that the market wants to hear, and then revise it the next month. So, at any time, the government can make the number what they need it to be to make the market go up, and then put forth the bad part in a revision the next month.
This is a pretty good trick, isn’t it?
The agenda of the government in this situation is not to give the individual investor, taxpayer or consumer the truth. The government’s agenda is to give people hope, to give people an optimistic view or at least the perception of an optimistic view. They want people to think that things are always getting better so consumers will buy and investors will invest.
The government won’t try to convince you that things are great when they are not, but they will spin it to positive any chance they get. And if that means playing with some numbers and putting an overly optimistic spin on them, then so be it!
Remember: Don’t believe everything you read … especially economic news coming from Uncle Sam!
Related Articles:
- Don’t Buy Into Wall Street’s Bull …
- The Easiest Way to Protect Your Option Profits
- How to Stay One Step Ahead of a Major Reversal
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