The Glade 4.0

NEW YORK (CNNMoney.com) -- As bad as the government's jobs readings numbers have been during the Great Recession, we'll soon find out the real situation likely was worse.

Much worse.

Job losses during the recession may have been underestimated by close to a million jobs. So instead of employers cutting just over 7 million jobs from their payrolls since the economic downturn began in December 2007, it's expected that the Labor Department's new estimate will be a loss of 8 million jobs.

"It's an enormous understatement of the severity of the crisis," said Heidi Shierholz, labor economist with the Economic Policy Institute, a union-supported think tank. "It confirms that things were actually worse on the ground than what the reports suggested."

The new reading will come when the economists at the department's Bureau of Labor Statistics release their annual revision of U.S. payrolls from April 2008 through March of 2009 Friday, using data that wasn't available as the monthly readings were being estimated and reported.

Typically the revision results in only a slight change in the previous estimate -- about 0.1% to 0.2% of the total number of jobs. But there was nothing typical about the twelve month stretch that ended last March.

That period included the bankruptcy of Lehman Brothers, the seizing up of financial markets and the U.S. economy toppling close to the brink of another depression.

The government's current readings show that 4.8 million jobs were lost in those twelve months, more than twice the jobs lost during any comparable April-March period going back to 1939, when the numbers first started to be compiled.

But the department has already given a preliminary look at this Friday's revision, and it says it believes it will show 824,000 fewer workers on payrolls than the current estimates. That would be the biggest downward revision in the 30 years for which comparisons of those adjustments is possible.

"There's certainly a disconnect between economists like myself who say the recession ended in May or June and the person on the street who says the recession hasn't ended," said John Canally, economist LPL Financial. "This report is only going to widen that gap."

Canally said the big revision is one reason that it's difficult to estimate what Friday's report will show about the labor market in January, or how investors will react to the report.

Economists surveyed by Briefing.com are forecasting a net gain of 13,000 jobs in January, following a loss of 85,000 jobs in December. The unemployment rate is expected to remain at 10%.

Economists say it shouldn't be a surprise that there is such a big revision this time, given the severity of the economic downturn.

"Most of the time it's reasonably accurate. But when there are very sharp changes in the economy, they tend to miss and it becomes a big problem," said Dean Baker, co-director of the Center for Economic and Policy Research.

The problem is that BLS models appear to have grossly overestimated the number of new businesses that opened during the recession.

The payroll number is created through a monthly survey of employers, but that survey misses employers who start a business during the course of the year, as well as those who have gone out of business.

So every month BLS uses what is known as a birth-death adjustment to estimate the number of jobs created or lost from that turnover in business.

During the April 2008-March 2009 period, that adjustment added jobs to the overall payroll number in 11 of the 12 months, resulting in a net gain of 717,000 jobs.

"When the numbers were coming out, the idea that we had a significant number of businesses being created didn't make sense," said Baker.

There is a concern that this problem didn't end in March of 2009. In fact, the adjustment added even more jobs -- 990,000 -- in the nine months reported since then.

So another big revision in the payroll numbers could be looming a year from now. That means this Friday's report should give pause to anyone who is depending on the official numbers to signal real improvement in the economy.

"The numbers might be showing some pick-up in hiring, but I haven't seen much evidence of it," said Mark Vitner, senior economist with Wells Fargo Securities.

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