From Fridays Wall Street Journal:
Seasonally Adjusted Jobs Numbers Offer Cold Comfort
The tradition of modifying employment data based on the weather is obsolete.
By
Daniel Quinn Mills
March 5, 2015 7:14 p.m. ET
The U.S. economy lost more than 2.7 million jobs between the middle
of December and the middle of January, but the big news from the January
jobs report was that the economy added 275,000 jobs during the same
period.
Why the discrepancy? The Bureau of Labor Statistics
touts "seasonally-adjusted" figures, which attempt to measure how
recurring seasonal events affect employment. The raw figures are
available to researchers, but the adjusted figures are the priority in
public announcements.
Yet reporting a statistically adjusted
figure as if it were original data is a mistake, and a significant
distortion of reality that only adds to public distrust of the
government and the media. People know that jobs were scarcer in January
than in February, even if the government told them the opposite.
Seasonally
adjusted figures also contribute to less effective policy-making. The
Labor Department reported on Feb. 26 that applications for unemployment
benefits unexpectedly rose to a six-week high. This would not have been a
surprise if observers had paid attention to the drop in employment
between December and January.
Seasonal-adjustment factors were
developed seven decades ago for an economy that predominantly produced
goods. Construction shut down in winter and automobile manufacturing
closed in January. So employment fell and the monthly estimates were
adjusted upward for an annual rate. Today's economy is a service
economy, with far less weather-related employment variation. For
example, when seasonal adjustment began, total American employment fell
almost 10% due to bad weather in the winter months. Now it is less than
2%.
January's seasonal adjustment implies that reduced levels of
employment and output will automatically return to higher levels when
spring arrives. There will be nothing automatic about the return of the
almost three million jobs lost. In fact, the largest declines in
employment were in retail trade and professional service, neither of
which is weather related.
This post was edited on 3/7 10:09 AM by battu75
Seasonally Adjusted Jobs Numbers Offer Cold Comfort
The tradition of modifying employment data based on the weather is obsolete.
By
Daniel Quinn Mills
March 5, 2015 7:14 p.m. ET
The U.S. economy lost more than 2.7 million jobs between the middle
of December and the middle of January, but the big news from the January
jobs report was that the economy added 275,000 jobs during the same
period.
Why the discrepancy? The Bureau of Labor Statistics
touts "seasonally-adjusted" figures, which attempt to measure how
recurring seasonal events affect employment. The raw figures are
available to researchers, but the adjusted figures are the priority in
public announcements.
Yet reporting a statistically adjusted
figure as if it were original data is a mistake, and a significant
distortion of reality that only adds to public distrust of the
government and the media. People know that jobs were scarcer in January
than in February, even if the government told them the opposite.
Seasonally
adjusted figures also contribute to less effective policy-making. The
Labor Department reported on Feb. 26 that applications for unemployment
benefits unexpectedly rose to a six-week high. This would not have been a
surprise if observers had paid attention to the drop in employment
between December and January.
Seasonal-adjustment factors were
developed seven decades ago for an economy that predominantly produced
goods. Construction shut down in winter and automobile manufacturing
closed in January. So employment fell and the monthly estimates were
adjusted upward for an annual rate. Today's economy is a service
economy, with far less weather-related employment variation. For
example, when seasonal adjustment began, total American employment fell
almost 10% due to bad weather in the winter months. Now it is less than
2%.
January's seasonal adjustment implies that reduced levels of
employment and output will automatically return to higher levels when
spring arrives. There will be nothing automatic about the return of the
almost three million jobs lost. In fact, the largest declines in
employment were in retail trade and professional service, neither of
which is weather related.
This post was edited on 3/7 10:09 AM by battu75
