U.S. Job Losses May Be Even Larger as Laborâs Model Breaks Down Share | Email | Print | A A A By Carlos Torres http://www.bloomberg.com/apps/news?pid=20601068&sid=aXoQJ14iSlWg Oct. 2 (Bloomberg) -- The U.S. economic slump earlier this year was so severe it short-circuited the governmentâs model for calculating payrolls, raising the risk that todayâs jobs report may be too optimistic. About 824,000 more jobs may be subtracted from the payroll count for the 12 months through last March when the figures are officially revised early next year, a Labor Department report showed today. The revision would be the biggest since the government started adjusting the numbers in 1991. The bulk of the miss occurred in the calculations for the first quarter of this year, the Labor Department said. The economy shrank at a 6.4 percent annual pace in the first three months of 2009, the worst performance since 1982. The figures raise the possibility that the governmentâs calculations continue to miss the mark. âWe are probably still underestimating job losses,â said John Silvia, chief economist at Wells Fargo Securities LLC in Charlotte, North Carolina. âThere could be another 30,000 to 40,000â that the data isnât picking up. That would mean the loss of jobs for September could turn out to be as high as 300,000, rather than the 263,000 reported today by the Labor Department. Todayâs report also showed the jobless rate climbed to 9.8 percent last month, a 26-year high. The potential revision for the year through last March would mean that the economy lost 5.6 million jobs for the period instead of the 4.8 million now on the books. Companies Surveyed The payroll estimates are based on a government survey of about 160,000 businesses and government agencies covering around 400,000 worksites. Once a year, the Labor Department revises its payroll figures after combing through tax records from the unemployment insurance program that covers practically all businesses. Those records are only available after a lag, explaining why it takes more than a year to make the tabulations. The department uses a formula, known as the birth/death model, to determine the influence on payrolls from the formation and demise of businesses. Because the government doesnât know if a company fails to respond because it has gone out of business or is just late, it estimates the number of companies that may have folded. By the same token, it plugs in an estimate for the formation of new businesses to account for their hiring. From April 2008 through December, the tax records showed the Labor Departmentâs payrolls figures overestimated payrolls by about 150,000, said Chris Manning, the national benchmark branch chief at the Bureau of Labor Statistics. That implies the estimates missed the mark by about 675,000 in the first quarter of this year, which currently shows a 2.1 million drop in payrolls. Not Working âWellâ âIn this period of steep job losses, the birth/death model didnât work as well as it usually does,â Manning said in an interview. âTo the extent that there was an overstatement in the birth/death model, that is likely to still be there.â The model added about 184,000 jobs to the payroll total last quarter compared with a 135,000 increase in the same period in 2008, before the financial crisis deepened with the collapse of Lehman Brothers Inc. âThis birth/death model is still assuming that we are getting new jobs from new-business creations,â David Rosenberg, chief economist at Gluskin Sheff & Associates Inc. in Toronto, said in an interview. âThese additions are coming somewhere from âAlice in Wonderland,ââ he said, referring to the novel by Lewis Carroll detailing the adventures of a girl that fell down a rabbit hole into a fantasy world. âEven though the current data is bad, the numbers are actually even worse,â Rosenberg said. To contact the reporter on this story: Carlos Torres in Washington ctorres2@bloomberg.net Last Updated: October 2, 2009 13:27 EDT