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Response to mahatmakanejeeves (Original post)

Fri Aug 3, 2012, 11:17 AM

14. Based on an average of the last 10 years, this estimate will be off by 92,900 jobs


The report for July is annually adjusted by a larger amount than for any other month save January. This July 2012 adjustment (via both Seasonal and Birth/Death adjustments) was the largest in at least the last decade, and possibly in history. (see graph below)


Binyamin Appelbaum has an interesting piece http://economix.blogs.nytimes.com/2012/08/02/beware-the-jobs-report-of-july/ reminding readers of the importance of the seasonal adjustments in the job numbers that are released each month. It points out that July has the second largest positive seasonal adjustment, after January, of any month. (I don't quite understand the chart, which seems to show positive seasonal adjustments for every month.) For example, last year the seasonal adjustment added 1.3 million jobs to the raw data, turning the seasonally adjusted number into a gain of 96,000 jobs, despite an unadjusted loss of 1.3 million jobs. Appelbaum's point is that a small error in the size of the adjustment would have a huge impact on the jobs number reported for July.

The point is actually even more important than Appelbaum suggests. There are very large changes in employment month to for seasonal factors that have nothing directly to do with the state of the economy. When these patterns change then the jobs numbers will give us a misleading picture of the state of the economy.

That is why the unusually warm winter weather gave an overly optimistic picture of the economy. Since this job growth was borrowed from the spring, the subsequent months gave us an overly pessimistic picture of the economy. Seasonal patterns can also change for reasons not directly related to weather. For example, stores now start holiday sales as early as October and the auto industry no longer shuts down all their factories in July for retooling.

Anyhow, Appelbaum is right to remind us about the importance of seasonal factors in the jobs numbers. We might not need a weatherman to know which way the wind blows, but we do need one to know how the economy is doing.



Last year, for example, the [Bureau of Labor Statistics] 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. 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.


July jobs report: Why the unemployment rate just wonít budge


The U.S. economy added 163,000 jobs in July, according to data from the Bureau of Labor Statistics. And the unemployment rate stayed essentially unchanged, even nudging up slightly from 8.2 percent to 8.3 percent (actually, if you want to get technical, it went from 8.22 percent to 8.25 percent).

The bright spot here is that the job market isnít getting dramatically worse. Those 163,000 new jobs were more than forecasters expected. Julyís jobs figures were also much better than the disappointing reports in May and June. The more troubling news, however, is that the economy isnít getting dramatically better, either.

This has been the case for quite some time: In the first seven months of 2012, the economy has added 151,000 jobs per month on average. Thatís on par with 2011, when the economy added an average of 153,000 jobs per month. Thatís enough to keep up with the growth of the U.S. population. But itís not enough to bring down the unemployment rate dramatically. According to the Hamilton Projectís jobs calculator, if we keep adding 151,000 jobs per month, on average, we wonít return to pre-recession levels of employment until after 2025.

Some other points of interest in the report: BLS revised its numbers slightly for previous months. The figures from May got revised up from 77,000 new jobs to 87,000. And Juneís numbers got revised down, from 80,000 to 64,000.



Seasonal And Birth Death Adjustments Add 429,000 Statistical "Jobs"


Happy by the headline establishment survey print of 133,245 which says that the US "added" 163,000 jobs in July from 133,082 last month? Consider this: the number was based on a non seasonally adjusted July number of 132,868. This was a 1.248 million drop from the June print. So how did the smoothing work out to make a real plunge into an "adjusted" rise? Simple: the BLS "added" 377K jobs for seasonal purposes. This was the largest seasonal addition in the past decade for a July NFP print in the past decade, possibly ever, as the first chart below shows. But wait, there's more: the Birth Death adjustment, which adds to the NSA Print to get to the final number, was +52k. http://www.bls.gov/web/empsit/cesbd.htm

How does this compare to July 2011? It is about 1000% higher: the last B/D adjustment was a tiny +5K! In other words, of the 163,000 jobs "added", 429,000 was based on purely statistical fudging. Doesn't matter - the flashing red headline is good enough for the algos.

Seasonal Adjustment:


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