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Mish's Global Economic Trend Analysis

Reader Question Regarding "Dropping Out of the Workforce"; Implications of the Falling Participation Rate
BLS Job Report: December Nonfarm Payrolls +103,000, November Revision +32,000, October Revision +38,000; Workforce DROPS by 260,000
Italy The Invisible Elephant

Reader Question Regarding "Dropping Out of the Workforce"; Implications of the Falling Participation Rate

Posted: 07 Jan 2011 08:42 PM PST

In response to BLS Job Report: December Nonfarm Payrolls +103,000, November Revision +32,000, October Revision +38,000; Workforce DROPS by 260,000, reader "Aleph" wants to know how someone drops out of the workforce.

Aleph writes ...

Hello Mish

Can you explain to your readership how the government determines that a person has dropped out of the labor force, as opposed to running out of unemployment benefits and becoming desperate (or homeless) with no job and no decent prospects? Or do they make no distinction between voluntarily leaving the work force and involuntarily leaving it?

"Dropping out" sounds much less dire than being unemployed because there aren't enough jobs to go around.

Thanks,

Aleph

Ways of Dropping Out

Hello Aleph, someone drops out of the workforce in one four general ways.

1. They stop looking for work
2. They retire
3. They go back to school full time and are unavailable for work
4. They are institutionalized (prison for example)

The big numbers come from 1, 2, and 3 with #1 leading the pack.

If a person wants a job, is available for a job and keeps looking for a job, that person is unemployed. I suspect most retirees, stop looking.

Note that number 2 may be voluntary or involuntary. An example of an involuntary retirement is someone who wants work to work but retires because he has expired all his 99 weeks of benefits and desperately needs to start collecting social security before he goes homeless.

All of this is determined by a phone survey. The BLS attempts to determine the following

1. Are you employed full time?
2. Are you employed part time?
3. Do you want a job?
4. Are you available for a job?
5. Have you looked for a job in the last four weeks?

A Yes to #1 or #2, no matter how few hours someone worked (exceptions apply for unpaid family workers) puts someone in the "EMPLOYED" category.
A No to #3, #4 (except for temporary illness), or #5 would put someone in the "NOT IN THE WORKFORCE" category.
A No to #1 and #2, and a Yes to #3, #4 (except for temporary illness), and #5 puts someone in the "UNEMPLOYED" category.
Those employed or unemployed are considered "IN THE WORKFORCE"

However, the BLS does not ask those questions directly. Rather the phone interview attempts to figure the answers to those questions.

How the Government Measures Unemployment

Please consider How the Government Measures Unemployment

There are about 60,000 households in the sample for this survey. This translates into approximately 110,000 individuals, a large sample compared to public opinion surveys which usually cover fewer than 2,000 people. The CPS sample is selected so as to be representative of the entire population of the United States.

Every month, one-fourth of the households in the sample are changed, so that no household is interviewed more than 4 consecutive months. This practice avoids placing too heavy a burden on the households selected for the sample. After a household is interviewed for 4 consecutive months, it leaves the sample for 8 months, and then is again interviewed for the same 4 calendar months a year later, before leaving the sample for good. This procedure results in approximately 75 percent of the sample remaining the same from month to month and 50 percent from year to year.

Each month, 2,200 highly trained and experienced Census Bureau employees interview persons in the 60,000 sample households for information on the labor force activities (jobholding and jobseeking) or non-labor force status of the members of these households during the survey reference week (usually the week that includes the 12th of the month). At the time of the first enumeration of a household, the interviewer prepares a roster of the household members, including their personal characteristics (date of birth, sex, race, Hispanic ethnicity, marital status, educational attainment, veteran status, and so on) and their relationships to the person maintaining the household.

Each person is classified according to the activities he or she engaged in during the reference week. Then, the total numbers are "weighted," or adjusted to independent population estimates (based on updated decennial census results). The weighting takes into account the age, sex, race, Hispanic ethnicity, and State of residence of the person, so that these characteristics are reflected in the proper proportions in the final estimates.

Because these interviews are the basic source of data for total unemployment, information must be factual and correct. Respondents are never asked specifically if they are unemployed, nor are they given an opportunity to decide their own labor force status. Unless they already know how the Government defines unemployment, many of them may not be sure of their actual classification when the interview is completed.

Similarly, interviewers do not decide the respondents' labor force classification. They simply ask the questions in the prescribed way and record the answers. Based on information collected in the survey and definitions programmed into the computer, individuals are then classified as employed, unemployed, or not in the labor force.

What are the basic concepts of employment and unemployment?

The basic concepts involved in identifying the employed and unemployed are quite simple:

People with jobs are employed.
People who are jobless, looking for jobs, and available for work are unemployed.
People who are neither employed nor unemployed are not in the labor force.

Unpaid Family Workers

But what about the two following cases?

George Lewis is 16 years old, and he has no job from which he receives any pay or profit. However, George does help with the regular chores around his father's farm and spends about 20 hours each week doing so.
Lisa Fox spends most of her time taking care of her home and children, but she helps in her husband's computer software store all day Friday and Saturday.

Under the Government's definition of employment, both George and Lisa are considered employed. They fall into a group called "unpaid family workers," which includes any person who worked without pay for 15 hours or more per week in a family-owned enterprise operated by someone in their household.

Interview Questions

The questions used in the interviews are carefully designed to elicit the most accurate picture of each person's labor force activities. Some of the major questions that determine employment status are: (The capitalized words are emphasized when read by the interviewers.)

1. Does anyone in this household have a business or a farm?
2. LAST WEEK, did you do ANY work for (either) pay (or profit)?
If the answer to question 1 is "yes" and the answer to question 2 is "no," the next question is:
3. LAST WEEK, did you do any unpaid work in the family business or farm?
For those who reply "no" to both questions 2 and 3, the next key questions used to determine employment status are:
4. LAST WEEK, (in addition to the business,) did you have a job, either full or part time? Include any job from which you were temporarily absent.
5. LAST WEEK, were you on layoff from a job?
6. What was the main reason you were absent from work LAST WEEK?
For those who respond "yes" to question 5 about being on layoff, the following questions are asked:
7. Has your employer given you a date to return to work?
and, if "no,"
8. Have you been given any indication that you will be recalled to work within the next 6 months?
If the responses to either question 7 or 8 indicate that the person expects to be recalled from layoff, he or she is counted as unemployed. For those who were reported as having no job or business from which they were absent or on layoff, the next question is:
9. Have you been doing anything to find work during the last 4 weeks?
For those who say "yes," the next question is:
10. What are all of the things you have done to find work during the last 4 weeks?
If an active method of looking for work, such as those listed at the beginning of this section, is mentioned, the following question is asked:
11. LAST WEEK, could you have started a job if one had been offered?
If there is no reason, except temporary illness, that the person could not take a job, he or she is considered to be not only looking but also available for work and is counted as unemployed.

Who is not in the labor force?

Labor force measures are based on the civilian noninstitutional population 16 years old and over. Excluded are persons under 16 years of age, all persons confined to institutions such as nursing homes and prisons, and persons on active duty in the Armed Forces. As mentioned previously, the labor force is made up of the employed and the unemployed. The remainder—those who have no job and are not looking for one—are counted as "not in the labor force." Many who are not in the labor force are going to school or are retired. Family responsibilities keep others out of the labor force.

To summarize, employed persons are:

All persons who did any work for pay or profit during the survey week.
All persons who did at least 15 hours of unpaid work in a family-owned enterprise operated by someone in their household.
All persons who were temporarily absent from their regular jobs because of illness, vacation, bad weather, industrial dispute, or various personal reasons, whether or not they were paid for the time off.

Unemployed persons are:
All persons who did not have a job at all during the survey reference week, made at least one specific active effort to find a job during the prior 4 weeks, and were available for work (unless temporarily ill).
All persons who were not working and were waiting to be called back to a job from which they had been laid off (they need not be looking for work to be classified as unemployed). -

One More Exception

Based on an example in the article, those out of work because of a labor dispute are considered employed even if they are looking for another job during the dispute.

Finally, please note that the official unemployment rate is solely based on the household phone survey as described above. It may not bear any resemblance to the weekly unemployment claims numbers or the monthly establishment jobs report.

Participation Rate, Employment Population Ratio, and Unemployment

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The above chart from The Declining Participation Rate by Calculated Risk.

The falling participation rate reflects the number of people dropping out of the workforce. It is falling for two reasons. People have given up looking for a job and also because of demographics (people retiring as the boomer population ages). The predominant reason is people have stopped looking for a job.

Here are my posts on Creative Destruction, referenced in the chart above.

The workforce should be expanding by 100,000 to 125,000 jobs a month. Instead it is falling like a rock. This is a very deflationary event. It stops credit expansion, and it reflects retirees needing to draw down on their savings, pulling money out of the stock market.

Stock market pressures are negative when people need to get out or they fear further loses in their retirement accounts.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

BLS Job Report: December Nonfarm Payrolls +103,000, November Revision +32,000, October Revision +38,000; Workforce DROPS by 260,000

Posted: 07 Jan 2011 10:42 AM PST

Following ADP's report of private-sector employment at +297,000, the BLS reported private sector employment at +113,000 and an overall nonfarm total of +103,000 well under expectations of about +175,000 jobs. However, there were substantial backward revisions to note.

Revisions

November nonfarm payroll revised from +39,000 to +71,000 a gain of +32,000.
November private payroll revised from +50,000 to +79,000, a gain of +29,000.
October nonfarm payroll revised from +172,000 to +210,000 a gain of +38,000.
October private payroll revised from +160,000 to +193,000, a gain of +33,000.
Combined nonfarm payroll revision +70,000.
Combined private payroll revision +62,000

If those back revisions were instead added into today's numbers, nonfarm payrolls would be +173,000 and private sector jobs at +175,000. Those would have been good, but not amazing numbers.

However, a better way of looking at things is via the revisions. We had a better than expected seasonal ramp of jobs in October followed by subpar job growth in November (even after the revisions), and subpar growth in December as well.

This is along the lines that I have suggested several times: limited hiring following seasonal retail hiring.

260,000 Drop Out of Work Force

The reported unemployment rate fell a substantial .4% to 9.4%. However, much of that that gain is a statistical mirage. The BLS reports a whopping 260,000 people dropped out of the work force. As a result the participation rate fell to a new low of 64.3%.

BLS December Report

Please consider the Bureau of Labor Statistics (BLS) December 2010 Employment Report.

The unemployment rate fell by 0.4 percentage point to 9.4 percent in December, and nonfarm payroll employment increased by 103,000, the U.S. Bureau of Labor Statistics reported today. Employment rose in leisure and hospitality and in health care but was little changed in other major industries.

Unemployment Rate - Seasonally Adjusted

Bear in mind, were it not for millions of people allegedly dropping out of the labor force over the last year, the unemployment rate would be over 11% right now.

Nonfarm Payroll Employment - Seasonally Adjusted

Note the effect of temporary census hiring earlier this year. For all the hype about the improving economy, there has only been one good jobs report all year, in October.

Establishment Data

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Index of Aggregate Weekly Hours

The average workweek for all employees on private nonfarm payrolls held at 34.3 hours in December. The manufacturing workweek for all employees declined by 0.1 hour to 40.2 hours, while factory overtime remained at 3.1 hours. The average workweek for production and nonsupervisory employees on private nonfarm payrolls increased by 0.1 hour to 33.6 hours.

In December, average hourly earnings for all employees on private nonfarm payrolls increased by 3 cents, or 0.1 percent, to $22.78. Over the past 12 months, average hourly earnings have increased by 1.8 percent. In December, average hourly earnings of private-sector production and nonsupervisory employees rose by 2 cents, or 0.1 percent, to $19.21.

BLS Birth-Death Model Black Box

For those unfamiliar with the birth/death model, monthly jobs adjustments are made by the BLS based on economic assumptions about the birth and death of businesses (not individuals).

Birth Death Model Revisions 2009

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Birth Death Model Revisions 2010

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Birth-death adjustments remain in the solar system for an unprecedented four consecutive months. November was negative. I cannot recall the last negative number in any month but January or July.

Birth/Death Model Methodology

The big news in the BLS Birth/Death Model is the BLS is going to move to quarterly rather than annual adjustments.

Effective with the release of January 2011 data on February 4, 2011, the establishment survey will begin estimating net business birth/death adjustment factors on a quarterly basis, replacing the current practice of estimating the factors annually. This will allow the establishment survey to incorporate information from the Quarterly Census of Employment and Wages into the birth/death adjustment factors as soon as it becomes available and thereby improve the factors.

For more details please see Introduction of Quarterly Birth/Death Model Updates in the Establishment Survey

In recent years Birth/Death methodology has been so screwed up and there have been so many revisions that it has been painful to watch.

It is possible that the BLS model is now back in sync with the real world. Moreover, quarterly rather than annual adjustments can only help the process.

Please note that one cannot subtract or add birth death revisions to the reported totals and get a meaningful answer. One set of numbers is seasonally adjusted the other is not. In the black box the BLS combines the two coming out with a total. The Birth Death numbers influence the overall totals but the math is not as simple as it appears and the effect is nowhere near as big as it might logically appear at first glance.

Birth/Death assumptions are supposedly made according to estimates of where the BLS thinks we are in the economic cycle. Theory is one thing. Practice is clearly another as noted by numerous recent revisions.

Household Data

In the last year the civilian population rose by 1,965,000. Yet the labor force rose by a mere 518,000. Those not in the labor force rose by 1,447,000. In December alone, a whopping 260,000 people dropped out of the workforce. The one bright spot in the entire report: employment rose by 297,000.

Households Stats

The number of unemployed persons decreased by 556,000 to 14.5 million in December, and the unemployment rate dropped to 9.4 percent.
The number of long-term unemployed (those jobless for 27 weeks or more) was little changed at 6.4 million and accounted for 44.3 percent of the unemployed.
The civilian labor force participation rate edged down in December to 64.3 percent, and the employment-population ratio was essentially unchanged at 58.3 percent.
The number of persons employed part time for economic reasons (sometimes referred to as involuntary part-time workers) was essentially unchanged in December at 8.9 million. These individuals were working part time because their hours had been cut back or because they were unable to find a full-time job.
About 2.6 million persons were marginally attached to the labor force in December, little different than a year earlier. (The data are not seasonally adjusted.) These individuals were not in the labor force, wanted and were available for work, and had looked for a job sometime in the prior 12 months. They were not counted as unemployed because they had not searched for work in the 4 weeks preceding the survey.

In January 2010 the number of people working part time for economic reason was 8.3 million. 12 months later the total has gone up by 631,000.

Table A-8 Part Time Status

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There are now 8,931,000 workers whose hours may rise before those companies start hiring more workers.

Table A-15

Table A-15 is where one can find a better approximation of what the unemployment rate really is.

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Grim Statistics

The official unemployment rate is 9.4%. However, if you start counting all the people that want a job but gave up, all the people with part-time jobs that want a full-time job, all the people who dropped off the unemployment rolls because their unemployment benefits ran out, etc., you get a closer picture of what the unemployment rate is. That number is in the last row labeled U-6.

While the "official" unemployment rate is an unacceptable 9.4%, U-6 is much higher at 16.7%. Moreover, both the official rate and U-6 would be much higher were it not for huge numbers of people dropping out of the workforce.

Things are much worse than the reported numbers would have you believe.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

Italy The Invisible Elephant

Posted: 07 Jan 2011 04:54 AM PST

In regards to the escalating sovereign debt crisis in Europe, most eyes have been focused on Greece, Ireland, Spain, and Portugal, the so-called PIGS.

Dr. Evil, a former government bond trader for a very prominent bank pinged me regarding my post PIGS Exposure Table, Explaining the Panic by Numbers. Her message was to pay more attention to the second "I" in PIIGS, namely Italy, the "invisible elephant".

Dr. Evil writes ...

Hello Mish

I just saw your table on the PIGS and I see the biggest one of all missing, ITALY. I traded Euro Government bonds for 11 years and know this market inside out. Spain is a big one should it go but Italy has a cool 2 Trillion EUR in debt and has much worse debt statistics than Spain.

Italy's debt-to-GDP ratio is 118% (2009). Greece got in trouble at 116%. Italy's deficit is smaller and has a high savings ratio. However, nobody focuses on that as Spain is in the limelight with a debt-to-GDP ratio under 60%. Should austerity measures result in a nominal GDP contraction in Italy, its debt stats will worsen very rapidly.

Italy is the elephant in the room not Spain.

Regards
Dr. Evil

Let's take a closer look at sovereign bonds spreads in Europe, comparing German 10-year government bonds to Italian 10-year government bonds.

German 10-Year Government Bonds

Italian 10-Year Government Bonds

Since mid-October, German 10-Year Government bond yields are up .64%. In the same timeframe, Italian 10-Year Government bond yields are up 1.04%.

The flight-to-safety divergence increased starting around December 16, 2010. Since then, German bonds yields are off .16% while Italian bond yields rose .14%.

Government Bond Spreads as of January 7, 2011

On January 7, 2011 the German-Italian spread government bond spread is 1.88% and rising. Table is courtesy of the Financial Times.

Web of Debt

Here is an interesting chart courtesy of the New York Times regarding Europe's Web of Debt that helps explain the picture.

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The graphic is from May, 2010 so it's a bit dated. However, it does explain the interrelationships quite nicely.

Note that Italy owes France a whopping $511 billion, 20% of the French GDP. Moreover, nearly 1/3 of Portugal's debt is held by Spain. Meanwhile Spain owes huge amounts to Germany, France, and the UK.

Do you think all of that will be repaid? I don't.

Critical Court Ruling Coming Up

In Feb 2011 the German court gives its verdict on the constitutionality of the bail-out. Fifty academics and politicians sued the government over it. February is crunch time. For more details please see EU Commission Plans Haircuts on Bank Debt; Greek Yields Hit New Record; China Buys Spanish Debt; German Courts to Decide Bailout Constitutionality.

If the German courts uphold the constitutionality of these various bailouts, the crisis is merely pushed a bit further down the road.

New Irish Government Likely To Demand Haircuts

In March a new Irish government will take over and it is highly likely that government questions the hundreds of billions Ireland owes German, French, and UK banks.

I believe Ireland should tell the ECB and IMF to go to hell and default. For my rationale, please see To Ireland With Love. Here is the "Trojan Horse" image I used with the article.

Italian Snowball and Off-Balance Sheet Derivatives

In a subsequent email, Dr. Evil elaborated on Italy's off-balance sheet debt.

Hello Mish,

If Italy were to go into a nominal GDP recession on account of its austerity programs, its debt-to-GDP ratio would likely be 130% by 2012. It's difficult to see how the market would ignore that.

Also check out Italy's debt compared to Germany. Here is the official EU Gross Government Debt Figures by country. Note that as of 2009, Italy's Debt is 1.763 Trillion EUR, about the same as Germany. Obviously the German economy is far bigger.

Moreover, I assure you that Italy has a lot of off-balance sheet debt. Some European countries took some very creative measures to reduce interest payments on debt. Italy was one of those countries.

I have seen Italy do HUGE (10+ billion USD) derivative transactions. Those transactions were all off-balance sheet but the cash flows behind the transactions were very real.

Italy was the number 1 customer for big investment banks in London for years. You won't find anything about that in the press.

In 2011, Italy will need to rollover a pile of debt. It will be interesting to see how that goes. I believe that if the 10-year yield hits 6%, an irreversible snowball effect similar to what Greece and Ireland went through is likely.

That's when gold hits $2000

Dr. Evil

2011 Italian Debt Issuance

Inquiring minds are reading Italian Public Securities By Maturity to see how much debt Italy will need to rollover in 2011.

A quick look at page 3 totals approximately 281 billion in euro debt rollovers. Assume a 5% budget deficit on a GDP of roughly 1.5 trillion euros and you end up with 281 + 75 billion or roughly 356 billion euro total debt issuance.

Will the market accommodate that issuance at a good interest rate? If not, the "Invisible Elephant In The Room" will quickly make its presence known in a rather rude manner.

Addendum:

Flashback July 23,2006: Citigroup Haunted by Dr. Evil, Fails to Gain Governments' Trust

Almost two years after Citigroup Inc. riled the dozen countries in Europe's government bond market with secret trades code-named Dr. Evil, the debacle is hurting shareholders of the world's largest financial institution.

Citigroup arranged just 2.3 percent of the 155 billion euro ($196 billion) in debt sold by the governments since it unleashed Dr. Evil on Aug. 2, 2004. That's little more than a fifth of its market-leading 10.1 percent share in 2003, data compiled by Bloomberg show. And while the $26 million fine Citigroup paid was the equivalent of a rounding error on annual earnings, the New York-based bank has lost the chance to win lucrative fees for handling sales of state assets, such as France's $7 billion stake in Groupe Caisse d'Epargne; Citigroup is now 14th among advisers on European privatizations, down from third.

German financial market regulator Bafin referred the case in January 2005 to a public prosecutor, who decided against pursuing the case "for legal reasons," said Anja Neukoetter, a Bafin spokeswoman in Bonn. France's Autorite des Marches Financieres passed its evidence to the U.S. Securities and Exchange Commission, said Sabine Baudin, a Paris-based spokeswoman at the AMF.

Thomas Maheras, 43, Citigroup's head of global capital markets, acknowledged in a memo to employees that the bank's conduct wasn't above reproach.

"We regret having executed this transaction," Maheras said in the memo, which was distributed to news organizations in September 2004. "We failed to fully consider its impact on our clients, other market participants and our regulators."

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

SEOmoz Daily SEO Blog

Our Online Reputation Management Playbook

Posted: 07 Jan 2011 02:18 AM PST

Posted by brianspatterson

This post was originally in YOUmoz, and was promoted to the main blog because it provides great value and interest to our community. The author's views are entirely his or her own and may not reflect the views of SEOmoz, Inc.

We recently completed an interesting reputation management project and I thought it'd be helpful to post our strategy and results to the SEOmoz community. My hope is that you'll read this and get some ideas, or even better, you'll point out some areas that we overlooked or things we can do to improve our approach.

The Client's Problem

Our client approached us with a problem that we are now seeing fairly often for many companies. As you began to type our client's brand name into Google Search, Google Suggest displayed our client's brand name + the word 'scam' as the second option, directly below their brand name. Talk about damaging your reputation!

We signed a confidentiality agreement, so I can't say specifically who the client is, but below is a screenshot from another large company, Direct Buy, whom we found experiencing a very similar issue.

Our client believed they were losing a lot of business due to this issue, particularly in the case of people who were ready to buy, but then went to do a Google Search to learn a bit more about the company before they plunked down their credit card. There is a great quote from Dave Naylor on this exact problem, "If Google Suggest's second result is 'scam', then people WILL click on it". These customers likely clicked the 'scam' recommendation and were scared off from purchasing from our client.

Our client is not a fraudulent organization in any way, and they offer real services and products to their customers, but the way they offer service is also complicated and in a volatile industry where no company is without its detractors. Even though they deliver their product as stated, and 99% of their clients love it, there seemed to be a small percentage that just weren't happy. Some of these unhappy customers took their gripes to the web. Additionally, there were also a high number of obvious cases where competitors were posting negative information about the company in order to damage their brand. We would not perform reputation management for any company that was a scam or participated in fraudulent or misleading activities, and after fully researching the business, we were 100% comfortable with helping them with their problem.

Because of all of this negative content about our client, when someone indeed clicked the '[Insert Brand Name] Scam' suggestion from Google Suggest, they were finding the first 2 pages of results filled with very negative 'flames' about the company. Some of this negative content was on personal blogs and others on complaint sites and forums. There were even a few positive reviews on blogs that were inundated with numerous scam accusations in the comment section, thus making a positive article turn very negative and harmful to the brand.

Our Research

Before diving right into what we did to change this, I want to talk a little bit about some research we did on this issue. We wanted to understand, as best as we could, how this problem came about. We hypothesized that very few people actually typed in 'brand name scam' initially, but maybe at some point it was just enough to get it to be a suggestion. Once it became a suggestion in Google Suggest, searcher's curiosity was piqued and so they clicked on it at a high rate. Google likely interpreted the large amount of clicks to mean that the phrase is a highly relevant suggestion, and as such moved it up to the top of the list of suggested terms.

Google's official statement on how Suggest works, from this blog post, is:

"As you type, Google's algorithm predicts and displays search queries based on other users' search activities. These searches are algorithmically determined based on a number of purely objective factors (including popularity of search terms) without human intervention. All of the predicted queries shown have been typed previously by other Google users. The autocomplete dataset is updated frequently to offer fresh and rising search queries. In addition, if you're signed in to your Google Account and have Web History enabled, you may see search queries from relevant searches that you've done in the past."

We think there is quite a bit more to it than this. We recently read of a case study where a brand new domain had acquired a 'scam suggestion' from Google Suggest. It was evident that nobody had searched for this domain, let alone searched for the domain with the word 'scam'. What the domain owner found was that two scraper sites had scraped content from his site, and those two scraper sites had the word 'scam' buried in the URL. Based on this incident, we think it is very possible that content and associated words in Google's index may also influence the suggestions.

This SEOmoz Q&A by Dr. Pete is also about this very topic, and Dr. Pete believes it is possible that Google Suggest is biased to serve up the 'scam' suggestion, among others.

We kicked around the idea of working to influence Google Suggest to force out the ‘scam’ suggestion, and may revisit it down the road, but we decided that the fastest way to take action would be to push the negative content out of the SERPs with positive content that the client had complete control over. This way, when someone searched the scam phrase, they'd have to dig deep into the SERPs to find anything negative about the brand.

I know that you may be thinking that pushing bad results out of the SERPs feels a little dirty. I felt this way at first, however, after fully researching various approaches and processes we now believe firmly that it is indeed a Google sanctioned method. Our belief is based on this blog post from the Official Google Blog on how to get rid of negative brand rankings in the SERPs. In it, it states:

Instead, you can try to reduce its visibility in the search results by proactively publishing useful, positive information about yourself or your business. If you can get stuff that you want people to see to outperform the stuff you don't want them to see, you'll be able to reduce the amount of harm that that negative or embarrassing content can do to your reputation.

Our Approach

We pitched the client, and subsequently implemented, a pretty ambitious plan. Our stated goal was to own 90% of the first two pages of Google results in 6 weeks. To control at least 18 positions, we knew we needed to focus on more than just 20 pieces of content. We decided that we would define 50 pieces of content, and as time went on, we'd determine which pieces of content Google was signaling that it liked (by slowly moving it up) and which it didn't. The content we focused on fell into two natural categories, Pre-Existing Content and New Content. The content for each of these categories was as follows:

Pre-Existing Content

Subdomains on the client's website - The client had created two of these before we were brought in. They were subdomains setup that specifically addressed the false accusations.
News articles - A benefit of the client being a big company is that they've already had plenty of mainstream press. We identified positive articles from Business Week, The Wall Street Journal, and other Industry publications to promote for the scam phrase. We found that, even if the article didn't contain the word 'scam', anchor text alone, linking to these strong domains, could get them to rank for the scam phrase.
Wikis - It seems that most industries and niches have their own wiki's. Our client had a page in a niche wiki, so we simply added the word 'scam' into the wiki in a natural way. Doing this, plus a few links, helped it rank for the scam phrase.
Blog Posts - There were a number of positive blog posts about the company already online. The problem was, as I mentioned previously, that the comment sections of many of them were overrun with very negative comments (we could tell most of the comments were anonymous and contained inaccurate and fake information, likely from competitors). So, we chose to only promote blog posts that had disabled comments. Even if a blog post had no comments, we didn't use it if comments were open because they could always turn negative.
Youtube - The client had created a few Youtube videos disputing the mis-information being spread about their business. Since YouTube allows for full content moderation, we found videos to be a great source of positive content that can be controlled.

New Content

Content on the client's website - When the client originally tried to tackle this problem themselves, they had created a few posts on their blog that were optimized for the brand name + scam keyword. Since an official brand site is the most likely site to rank for any query containing the brand name, this was a smart move.
Posts on sites we own - We have a fairly large number of blogs that we run as part of our business. Some of these blogs focus on the same industry as the client, so we simply created posts optimized for the scam keyword. Since these domains are aged and trusted, we knew it wasn't going to be too difficult to get them to rank.
Article Directories - Squidoo, HubPages, eZineArticles, Buzzle, InfoMarketers, Go Articles, and many more - We have nice, old accounts on many sites like these, so we added new articles optimized for our term to them.
Mini Blogs - We setup a number of mini-blogs on WordPress, Blogger, Posterous, Tumblr, and a few other WordPress MU sites we identified that we felt we'd be able to create a blog on that could rank.
New Sites We Created -We bought the .com, .net, and .org versions of the exact match domains for the search phrase (including the word 'scam', eg. brandnamescam.com). We also bought hyphenated versions of the domain as well. We then setup mini-sites on different c-class IP addresses.

As you can see from the lists, our targets included a diverse set of content. The key was that there had to be some sort of control over the page. Either comments had to be turned off (to keep a positive article from becoming negative by a bunch of negative comments) or we needed to have control over the page/comment moderation to ensure we could control the message.

The general content on these pages included customer testimonials, positive stories, general information about the company, satisfaction guarantees, debunked mis-information, and other stories that either didn't pertain to the scam issue at all, or they showed positive aspects about the company. Is this a perfect strategy? No, I don't think so. But we believed that having 2 pages or SERPs with little information about an actual 'scam' is probably enough for most searchers to abandon the topic.

Link Building

After we had our content targets identified and/or created, we started the link building process. One thing I absolutely loved about getting some of these articles ranked was that it took almost no work to get something on page 1. Some of the positive pre-existing articles that we wanted to get on page 1 were on sites like the New York Post, so it basically took 2 lower-quality links with the exact anchor text 'brand name scam' to get it on page 1. It made me (briefly) dream about how easy a job it must be to do SEO for a site like The Wall Street Journal; you can practically rank #1 for any low-competition search term you want!

Our primary link building strategy was built around using article directories. We wrote hundreds of unique, quality articles (no spinning or machine generation) and submitted them to article directories, web 2.0 sites, blogs, and other sites that accepted our content. We varied our anchor text, and spread out the links across sites, and over time, so that the link profile was fairly natural.

Interlinking

We also wanted to interlink our sites in a way where they would all benefit, while avoiding obvious signals of 'link farms' or 2 or 3 way link exchanges. What we came up with is represented in the graph below. We've replaced the actual sites with S1, S2, etc, but this is the exact interlinking pattern we used. Sites that needed more help received more links, while some of the stronger sites only needed one or two links pointed at them.

interlinking websites for SEO

Social Engineering

I also wanted to talk about another tactic we used to take on some of the more stubborn sites that just wouldn't seem to move out of the SERPs. In our case, these stubborn listings were two personal blogs. We heavily researched these blogs to understand the psyche of the authors. We then determined two separate strategies to pursue that would help us with our goal. In short, for one blog we made an offer to buy it outright. We didn't explain our background or why we wanted it (that is irrelevant to the buy/sell process), we just simply made an offer and began dialogue with the owner. In the second case, we talked to the webmaster and during discussions realized that the owner was not interested in the traffic received from the article, so we were able to work out a deal to help move the content out of the SERPs. We treaded very lightly with these tactics for two reasons: (1) We wanted our work to be legal and ethical, and (2) we needed to be very careful that these site owners didn't just create a new blog post talking about how our client was trying to 'buy their silence'.

Execution & Results

The results from our project were near-perfect. We obtained nine of the top ten results on page one, and all ten results on page two. We think that if we had more than just six weeks to complete this, we would have been able to get all 20 of the top 20, but 19 out of 20 wasn’t bad and our client was ecstatic.

I'd love to know your thoughts on how we approached this and what you would do differently. Based on the success we've had, we are looking to expand our offerings in this area. I personally loved the challenge of this and the interesting aspects of the problem.

About the author: Brian Patterson is a Partner at MangoCo, a Search Engine Optimization Company in Virginia. You can follow Brian on the the Twitter @brianspatterson.

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Creative Ways to Get Links from a Reluctant Target - Whiteboard Friday

Posted: 06 Jan 2011 01:01 PM PST

Posted by Aaron Wheeler

Happy new year, mozzerati! Another year, another 52 Whiteboard Fridays to be had. I don't know about you, but I'm totally pumped to see what the whiteboards have in store for us this year! You may notice a new and friendly banjo-pickin' Roger in the beginning of this week's video, and you'd be quite apt in doing so. Our intro graphics have definitely taken a turn for the snappier this year - let us know what you think in the comments.

As for this week's video, Rand is going to show you some great ways to start the new year out right by getting those links you so desperately crave yet, time and time again, are tragically denied. You can do a lot for yourself by simply making a personal connection, openly communicating with your peers, and making other people's jobs a bit easier. After watching, if you think of any other ways you're able to garner these hard-to-get links, please share in the comments below!

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Howdy, SEO fans. Welcome to another edition of Whiteboard Friday. This week we're dealing with a particularly tough problem, which is when you've got a link target that's extremely hard to approach, difficult to get a link from. You think to yourself, boy, this is a high-value link target. They've got good metrics, good rankings. The link could send me some good visitors and I want to get that brand linking to me. I think it is a trusted domain, and I that it is going to help me in the rankings. A lot of times those tough few dozen or couple dozen links can really push you over the edge in the rankings for particular things. So, I wanted to discuss some creative ways to get links from reluctant targets.

Now, first off, let me just say that I hope this situation doesn't happen. It shouldn't be the case that you first ask for a link and then get turned down. If you think the situation is going to be tough, you want your first impression, that first effort to feel very natural and organic. In fact, it should be natural and organic. They should link to you because they want to link to you because you actually have something to provide that's helpful. That's exactly what these ways are. So, hopefully, you don't get that, "No way I am linking to your site."

So, first off, some creative tactics. Number one, the testimonial. One of the really interesting things that we've seen on the Web is that people, companies of all kinds are desperate for testimonials, particularly ones that do a few things. Number one, they come with a photo. Someone is willing to send a photo of themselves. They are willing to have their full name, their title, and the company they are associated with. There are so many anonymous testimonials that people have stopped believing in those. They worry like, "Hmm, is that an actor? Is that stock photography, or is this a real person?" They've been hard pressed to find people who will leave them testimonials that answer the specific item that they want. If your company provides online surveys and there are a lot of people who are really worried about security and someone leaves a testimonial that says, "Hey, I'm the CTO at a security company and this survey product I always feel secure because I checked out their stuff and I know that I can feel safe using them." Great. That's terrific. That's precisely the kind of testimonial that you want.

Number two, the social connection. This is the idea that building up a relationship through Facebook or Twitter. Twitter is particularly powerful for this in building professional relationships. So is LinkedIn. By retweeting your target, by following them, by engaging with them in conversation regularly, by commenting on their blogs, by participating in their communities, you can make yourself known and typically build that relationship that will eventually lead to the link. The great part about this is you're getting way more than the link. If you think this is a brand that can really help you, a person that can really help you personally and professionally, this is a great thing to do anyway. That is the case with a lot of these. If you really endorse a brand, being able to say nice things about them is a great way to pay it forward and hopefully get some of that in return. Doing the social connection is a great way to build up that relationship.

The next one, the in-person connection, relies on just the same philosophy and methodology. The idea being that you go to the places where you know your target audience is going to be, the people that you're trying to get links from. You go to those conferences. You go to those events. Even if you think, "Well, they're not customers. They're just sort of people that I want to partner with." If they're people that you want to partner with and get links from online, they're probably people who talk to and mingle with and can help your business in offline ways as well. This is exactly what the search engines are trying to mimic with their link graphs. So, going to these events, going out to dinner, I don't know why it's one of those medieval long tables and they're both at two ends, but yeah, I guess not quite as friendly a dinner as I thought. Picking up the check. These are great things. When two people reach for the check and you say, "No, no, I got this one, but maybe, you know, just link to me sometime on your site." Great way to end a conversation, and the person will always, "Oh, yeah, sure. No problem. A link. Phew!" You pick up the dinner. It is a $25 to $50 link, easy. Well, depends on which bottle of wine you get I suppose.

Next one, the press piece. Interestingly, and probably not surprisingly, when press writes about you, when they say particularly nice things about you and they do interviews of you or they have you on a radio program, they interview you for a blog or those kinds of things, you can mention that third party. Link to the target over here in that blog post where you're getting interviewed. Mention them in that radio interview. Talk about their business a little bit. It feels very selfless to them, and it is very likely to get you that link. The mention of you in the press, whether it is a big press piece or an industry press piece or just a blog press piece, is also one of those things where when you ping them and you remind them, "Hey, we were in this press piece. I talked about you," and those kinds of things, it fulfills that mentality of is this a trustworthy business. This builds enough trust to where the linking target can feel like, "Oh yeah, linking to them is probably a really good idea anyway because they're a solid brand, solid website."

Last but not least, the missing content piece. This is one of the ones that I really love quite a bit for multiple reasons. First off, the idea is that your target probably has content they wish that they had on their website. That could be a report, a survey, a blog post, some infographics, a data set, a tool, whatever that thing is that they're wishing. Right now I'm wishing there were a hundred different kinds of reports and research papers I wish people would publish on SEOmoz and submit to SEOmoz. I know a lot of people do. That's fantastic. But what I am saying is that missing content piece, if you can ID what those are, talk to your contact and say, "Hey, I can write those, build those, etc., for you," when they put that piece up, they're going to link to it well. Externally it will likely get linked to well. You'll have a link from there as the content developer, the author, the builder of that. Now, what's beautiful is two things. Number one, you've gotten a link from your target. Great. Number two, you've built a relationship with the target, also great. Number three, people who are coming to that page, who are externally saying, "Wow, this is a really good resource," you're the person who authored it. They're going to give credit certainly to the company that hosts it, but as the author you'll get some credit as well and you'll get traffic from that. That traffic could be interested in what you do. It could be potentially people who will link more to you and identify you when they link to the initial piece of content.

It is just a beautiful synergy here that is happening, really with all of these tactics. That's why I love that creativity, that outside the box kind of thinking as opposed to a, "Well, you know what, I'm just going to link spam." This methodology just works so much better.

All right, everyone. I hope you've enjoyed this edition of Whiteboard Friday. We will see you again next week. Take care.

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Michael Gray - Graywolf's SEO Blog

Adding Revenue Streams Into Your Website or Blog

Posted: 06 Jan 2011 08:27 AM PST

One of my more popular posts from 2010 was about How to Integrate Advertising into Your Blog. In this post, I’m going to expand on that from a strategic point of view and talk about ways to add revenue streams into your website or blog.

Affiliate Marketing – Hopefully before you decided to build a website or blog, you built it around one or more key affiliate programs. It is possible to build a website around a specific brand or product with an affiliate program, but I recommend sticking with general concepts as opposed to specific programs. If a merchant goes out of business or changes their affiliate program, you don’t want to be locked into one program for monetization: you want the ability to change. Additionally, you want as many programs as possible. Run a travel website–it’s a no-brainer to work with hotel, airline, and rental car bookings from numerous merchants. But what about travel insurance, passport, and visa affiliate programs, travel books from Amazon, luggage from specialty retailers, photography equipment and so on? Don’t limit yourself. Look for related programs in related industries wherever possible.

Direct Advertising – A lot of industries have other businesses that are interested in buying advertising, and you can make good money with this strategy. Use a third party service like Quantcast to deliver reliable traffic stats to potential advertisers. Integrate ads into your blog, come up with a rate sheet, and put the information on a page on your blog. Make it as easy as possible for people who are interested to contact you. Respond to them quickly.

Contextual Advertising – Adsense is the 800 lb gorilla of contextual advertising. While I do recommend Adsense, I don’t recommend building a website whose only means of monetization is Adsense. It’s way too dangerous. Intelletext and Chitika are two other alternatives.

Subscriptions – Can you put out premium content or research that is good enough that people are willing to pay a monthly/quarterly/yearly fee to get it? If you can set up a premium monthly newsletter with high quality information that is educational or that saves people time or money, then you are sitting on a gold mine.

eBook – Similar to a subscription, but this is more of a “one-of” purchase. If you can write or have written a white paper or educational manual that people are willing to buy, you have another revenue stream for your website. Or take your best content and aggregate it all in one PDF. If it saves people time/money/effort, chances are good that you could sell it.

Sponsored Posts – Some advertisers are willing to pay a premium to get their message/content in front of an audience. If you go this route, have a style guide or recommendations for advertisers. Also try to find a frequency that works: doesn’t alienate your primary audience.

Events Calendar – If you maintain a listing of industry-related events that no one else does or that can’t be easily replicated, advertisers will pay to be listed in a premium section or have a banner displayed in a prime location.

Industry Directory – The key here is not to charge to be included, but to charge for the service of being reviewed and premium placement. You’ll have to add some people for free to get the list started, and you will have to reject the low quality submissions, but this can be viable if you are willing to put in the work.

eCommerce – If you have a lot of products, you will need a sophisticated eCommerce package. If you don’t, there are lots of simple shopping carts that are extremely easy to use.

While this isn’t every method you could use to add different revenue streams, they are some of the easiest to implement and quickest to start working. Hopefully this has given you an idea or two to add to your website. I’d also recommend reading Is Your Blog Advertiser Friendly and Adsense why Bloggers Don’t Get it from my archives.

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