Midknight Review predicted an unemployment rate as high as 10.4 %. The reported number was 9,7 %. We give you our defense in this post.

We made a prediction last week. We were not just "off" - heck, we missed it by "a country mile." This editor may not be able to talk his way out of this one, but here are some important considerations.

Our prediction was based on the following facts reported last week by the Labor Department:

1. 10% unemployment was reported by 138 cities, up from a December total of 125 metro.

2. Reported unemployment rose in 306 of 372 metro areas with 25 of those cities remaining the same as last month.

3. The 7 million figure for total job loss since "the beginning of the recession" was revised [last week] up to 8.4 million.

4. An additional 20,000 private sector jobs were discontinued following a decrease in available jobs of 15,000 in December.

And here is the real "kicker" : total employment DECLINED by a total of 22,000 positions. Fewer people working translate into a lower unemployment rate ??? !!! More on this following the figures below from the Labor:

ROSELAND, NJ -- (MARKET WIRE) -- 02/03/10 -- According to today's ADP National Employment Report®, private sector employment decreased by 22,000 in January. The ADP National Employment Report, created by Automatic Data Processing, Inc. (ADP®), in partnership with Macroeconomic Advisers, LLC, is derived from actual payroll data and measures the change in total nonfarm private employment each month.

Nonfarm Private Employment Highlights -- January Report:

-- Total employment:                       -22,000

-- Small businesses*                       -12,000
-- Medium businesses**                       9,000
-- Large businesses***                     -19,000

-- Goods-producing sector:                 -60,000

-- Service-providing sector:               +38,000

Addendum:
-- Manufacturing industry:                 -25,000

* Small businesses represent payrolls with 1-49 employees
** Medium businesses represent payrolls with 50-499 employees
*** Large businesses represent payrolls with more than 499 employees

According to Joel Prakken, Chairman of Macroeconomic Advisers, LLC, "Nonfarm private employment decreased 22,000 from December 2009 to January 2010 on a seasonally adjusted basis, according to the ADP National Employment Report. The January employment decline was the smallest since employment began falling in February of 2008. Growth of overall private employment is on the verge of turning positive."

Prakken added, "January's ADP Report estimates nonfarm private employment in the service-providing sector increased by 38,000, the second consecutive monthly increase. However, this employment growth was not enough to offset continued losses in the goods-producing sector. Employment in the goods-producing sector declined 60,000, with employment in the manufacturing sector dropping 25,000. The employment decline in the manufacturing sector was the lowest since January of 2008."

"Large businesses, defined as those with 500 or more workers, saw employment decline by 19,000 while small-size businesses with fewer than 50 workers, declined 12,000. Employment among medium-size businesses, defined as those with between 50 and 499 workers, increased by 9,000, the first increase in employment since January of 2008," said Prakken.

Prakken went on to say, "In January, construction employment dropped 37,000. This drop marks the third straight year of consecutive monthly employment declines and brings the total decline in construction jobs since the peak in January 2007 to 1,804,000."

The matched sample used to develop the ADP National Employment Report was derived from ADP data, which during the twelve month period through December 2009, averaged over 360,000 U.S. business clients and represented over 22 million U.S. employees. This approximately represents the size of the matched sample used this month.

Let's remember that the "unemployment figures" such as the one just reported is not a measure of "unemployment." Rather, it is a measure of those who are currently drawing benefits. The fact that that number declined may have nothing to do with an increase of jobs. Instead, it may have more to do with the fact that many drawing benefits through December, had out lasted their benefit programs and were taken off the "unemployment" benefits roles.

The one figure that needs to be included in our report is the OVER ALL unemployment numbers. That did decline from 17.3% to the current 16.5% on the strength of the employment of more than a million census workers by the Federal Government.

With all of this analysis, we are not so certain that our estimates are wrong !!! How's that for an Obama sized retort ?? !! Midknight Review is concerned for real jobless totals -- not employment increases as a result of the growth of Government. Under Obama, the size of government has grown to its highest totals in American history. In fact, in the District of Columbia, where the Government is the primary employer, unemployment is 5.7% - the lowest in the Nation.

How the "Employment Game" is played - an example.

If this editor were in Obama's shoes, he would report the newly hired one million census workers in this manner --- we would divide the 1 million census employment number by 5 and add in 200,000 "new jobs" for the next 5 months -- hoping that by the beginning of summer, real employment would kick in and I could claim to be one of the most profound economist of all time. See how this works ??!!! When the truth hurts, the game begins. This may be the answer to what has happened to the current "unemployment" numbers. Midknight Review continues to study the story line. More on this later -- jds.