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Seasonal Adjustments Discredit Jobless Rate

From the New York Times, of all places:

Beware the Jobs Report of July

By BINYAMIN APPELBAUM | Thursday August 2, 2012

The American economy almost certainly shed more than a million jobs last month, just as it does every July. But that’s not the “jobs number” that will get most of the attention when the Bureau of Labor Statistics speaks Friday morning.

No, the number we care about will be much smaller. Indeed, it is very likely to be modestly positive. And that is because of something called “seasonal adjustment.”

Every month, the Bureau of Labor Statistics estimates the number of jobs based on a survey of businesses. Then it adjusts the number to eliminate recurring fluctuations — such as from teachers going on summer break — so long-term trends are more visible…

This is a good and important idea. But right now we have a problem: Some economists believe economic turbulence has disrupted the calibration of those adjustments, undermining the accuracy of the bureau’s estimates.

And never mind that it could be political "turbulence" that is disrupting the calibration of those adjustments.

Federal Reserve officials have cited doubts about the accuracy of the monthly jobs number as one reason for their uncertainty about the health of the economy

Probably because people are starting to catch on that they are being systematically lied to.

The issue will loom particularly large on Friday, because the report for July is annually adjusted by a larger amount than for any other month save January, when holiday workers lose their jobs.

In the last 10 July jobs reports, dating back to 2002, the agency has added an average of 1.33 million jobs to its original estimate. Last year, for example, the agency estimated that payrolls declined by 1.3 million jobs in July, but it reported a seasonally adjusted increase of 96,000 jobs.

That places a huge premium on the accuracy of the adjustment: A 5 percent error in the adjustment would have shifted the reported total last July by two-thirds.

And even in the best of times, the bureau’s estimates are rarely that accurate.

For the record, it is impossible to see what the seasonal adjustment has been for last month on the overall number. Today’s press release from the Labor Department does not mention it.

The government has estimated an average change of 149,700 jobs in the last 10 July jobs reports, but it has since revised those estimates by an average of 92,900 jobs per year. In other words, the initial estimate is generally off by about 62 percent.

In three of those 10 years — 2002, 2003 and 2007 — the agency wasn’t even correct about whether the economy gained or lost jobs. So take Friday’s report with a measure of caution.

Which is an understatement if there ever was one.

And one more thing: The other headline number, the unemployment rate, is derived from a separate household survey. It’s also adjusted seasonally. And it has its own problems. But that’s a blog post for another month.

So the truth is so blinding obvious even the New York Times has to admit it.

This article was posted by Steve Gilbert on Friday, August 3rd, 2012. Comments are currently closed.

One Response to “Seasonal Adjustments Discredit Jobless Rate”

  1. GetBackJack

    I know some 20 year veteran Union Pacific RR men who were seasonally adjusted just this week


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