Bob,

The following charts shows the impact that the birth/death model appears to have on the
correlation between the alternative unemployment series (U series, i.e U3/U6) and the
standard CPS #’s that a re published every month (i.e 700K jobs lost last month, Table
B1 data, http://www.bls.gov/news.release/empsit.t14.htm).

-D Ratio (D=Δ): the delta ratio shows the correlation between U6 and CPS table B1
data. A D ratio value of 2% would mean that 100,000 jobs added to the market
would decrease U6 by 2%.. For the period covering 1994-2009 the median D
Ration was 0.07%, the mean was 0.24% and the Stdev was 0.85%
The data is not very tight due to the number of very large outliers in the data.
However if we remove the outliers greater then 1% the stdev drops to about
0.25% and the mean tightens to about 0.15%.
The large outliers tend occur when there is a very small change ± in the CPS
numbers and so the actual impact on U6 seems to be limited.
Also note that this correlation may be applied to U3 using the correlation U3 =
1.77*U6
12.0% 16
D Ratio (Change in U6 per 100K people)
14
10.0% U6 (SA)
12
8.0%
10
D Ratio

U6
6.0% 8

6
4.0%
4
2.0%
2

0.0% 0
Feb-94

Feb-95

Feb-96

Feb-97

Feb-98

Feb-99

Feb-00

Feb-01

Feb-02

Feb-03

Feb-04

Feb-05

Feb-06

Feb-07

Feb-08

Feb-09

D Emp = Δ Employment, the number of jobs in 100,000’s lost or gained per tableB1 (non
famr employees)
12.0% 800
D Ratio (Change in U6 per 100K people)
D Emp 600
10.0%
400
8.0%
200
D Ratio

D Emp

6.0% 0

-200
4.0%
-400
2.0%
-600

0.0% -800
Feb-94

Feb-95

Feb-96

Feb-97

Feb-98

Feb-99

Feb-00

Feb-01

Feb-02

Feb-03

Feb-04

Feb-05

Feb-06

Feb-07

Feb-08

Feb-09
Using the data obtained from building the correlation between CPS B1 data and U series
allows a projection to be made for unemployment. Given a number of current and
expected future economic factors, I expect to see an average of 500,000 to 700,000 jobs
lost per month for 2009. Using the median D Ratio correlation for the low projection and
a D Ratio value of 0.5% for the high projection.

U3 & U6 Projection 2009

22.0%
U6 Low Estimate
20.0% U6 High Estimate
U3 Low Estimate
18.0% U3 High Estimate

16.0%

14.0%

12.0%

10.0%

8.0%
Mar-09 Apr-09 May-09 Jun-09 Jul-09 Aug-09 Sep-09 Oct-09 Nov-09 Dec-09

From what I understand of unemployment data collection and calculation methods used
by the BLS, I would tend to think that a more accurate estimate of monthly job loses
might be to go backwards from U3/U6. You could do that by taking the change in U3/U6
and using the median value of 0.07% change in U6 for every 100,000 jobs lost/gained.

Example: Jan to Feb 09, U6 went from 13.9% to 14.8%, Δ = 0.9%

0.9% / 0.07 = 1.2 million jobs lost

If you want to work backwards, 0.1 seems to be a less noisy number to use then the
median of 0.07 this idea needs to be fleshed out a little further. But the whole birth/death
methodology seems to add a lot of noise to the data.

One last thought, the U3/U6 projections could end up being optimistic if we have a
serious downward acceleration such as the European banks seeing a large scale run or a
general dislocation scale event.