February 09, 2004

Note: The Importance of Seasonal Adjustment Factors

Nonfarm payroll estimates since January 2000: seasonally adjusted and not seasonally adjusted:

See what a difference? Essentially we go through a full-sized business cycle every year as far as employment is concerned, with the peaks coming in the late spring and in the Christmas season, and a little trough in the summer and a big trough just after Christmas.

Posted by DeLong at February 9, 2004 10:40 PM | TrackBack | | Other weblogs commenting on this post
Comments

So the take home lesson for those of us contemplating a do-it-yourself project in US employment statistics is... (?)

OK, I'll take a shot:
Compare statistics as average seasonally adjusted growth rates, averaged over cumulative months from latest trough. This will take into account seasonal adjustment, and average over periodic funny business from reweighting, other jigguring caused by the mysterious and complicated X-??seasonality adjustment programs that I cannot keep track of. And why not express things in growth rates of shares (normalizing everything by the annual adult US population) to net out changes in rates of population growth that people have mentioned here. And compare current recovery to same number months out from trough in previous recoveries, to take into account the fact that we are comparing a current recovery underway to ones that have been completed in the past -that is come kind of data censoring, I suppose.

Anyway, those thoughts come to mind when looking at that graph? So... what do people think?

If that is a good approach, where can I find something like that. NO, I don't want to do it myself. But I have started downloading data... So any advice might not go to waste.

Posted by: jml on February 9, 2004 11:08 PM

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What is the source of this information?

Posted by: a on February 10, 2004 12:49 AM

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most likely bls.gov

Posted by: n. on February 10, 2004 01:34 AM

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In a normal year, full time employment displays a particular pattern in the unseasonally adjusted numbers - when this pattern breaks down to the upside (as it did in 2000) and to the downside (as it did in 2001-2003) it shows an unsustainable rate of demand for full time labor. 2004 so far has the normal pattern reasserted, but at levels which indicate that the new level of employment - which is lower than the before - is not the baseline. In effect, the economy isn't going to "recover", but, instead, this is it - the new economy.

Not seasonally adjusted numbers quarter on quarter and year on year are a better indicator than seasonally adjusted numbers have been of late because, and I quote "the unusual problems in making seasonal adjustments" (Bureau of Labor Statistics).

The better indicator is to measure the spread between first spike peak, second spike peak and the trough number. This represents "employment volatility" and therefore the level of risk associated with being in the labor market - that is most of us who sell our labor.

Again looking at full time employment shows that many of the "jobs" are part time or unproductive self-employment, and the situation is far worse than the numbers would indicate.

Posted by: Stirling Newberry on February 10, 2004 04:24 AM

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I can understand this and why it needs to be seasonally adjusted in order for you really to understand what the labor figures mean in real terms.

Now I am just hoping you will next explain the Fed's new policy of encouraging a weaker dollar. As per Atrios. I do not understand that at all. As an expat who gets paid in an even worse currency than the USD (the Egyptian pound, which has been in free fall against hte dollar and evrything else since they floated it a couple of years ago), it does not really affect me that much, but I just don't get it and am hoping that you do, and that you can tell me what are the ramifications of that.

Posted by: Anna in Cairo on February 10, 2004 05:15 AM

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An important point: the typical seasonal pattern in unadjusted private-sector payrolls shows a very strong hiring trend for March thru June and a flattish trend in the second half of the year. Thus, the next few months will be key in determining the strength of the labor market in 2004. Despite all the hand-wringing over job "off-shoring," the pace of job losses is trending lower (still above pre-recession levels) -- but the major problem with the job market is a lack of job creation. Again, the next few months, when firms traditionally step up their hiring, will be key.

Posted by: Scott Brown on February 10, 2004 05:22 AM

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Scott's right that the problem is job creation, that job losses are going down. Off shoring adds to the pressure that is lack of labor demand - which, in turn is related to lack of investment supply.

Posted by: Stirling Newberry on February 10, 2004 06:43 AM

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Scott starts to address the (frankly political, partisan) issue I want to raise: what will the non-adjusted pattern mean for peoples' impression of employement/the economy going into November? Even without any fundamental change in the economy, we may be looking at, what, 3 million (?) more people working between now and the summer - that's 3 million fewer people pissed off, and 12 million fewer people thinking, "No one I know is benefitting from Bush's economy."

Or am I reading too much into this? Will a late-summer trough undo that anecdotal impression anyway? Is it too late for people to put any stock in Bush on the economy barring a stunning reversal?

So many questions, so few crystal balls.

Posted by: JRoth on February 10, 2004 07:01 AM

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Actually this is going to be my topic on air today when I go on http://www.arniemedia.com - arnie arnesen's show.

Namely that the real number to follow is full time hiring, because it is that that makes people feel the job market is good. Remember it isn't just unemployed people who think about the job market. It is everyone who is employed and wants to change jobs, or move because their spouse is, or is thinking of which major to pursue, or worried about retirment. The cyclical numbers - that is, those not adjusted - are based on people's "expectations". This fall was a better job market, but people expected the economy to be really taking off, what with a large (BushBucks) GDP number and all.

This expectation number - the volatility number - is what is important. Yes the Bush League will spin the normal cyclical uptick - not least by trying to draw comparisons against 2001, which was, for obvious reasons, the most dismal fall that almost anyone can remember. In fact, the BLS more or less fudged the numbers for 2 years by saying "Look it is fall, the season where we can expect a large down tick in employment, because it is the time of year when Arabs fly planes into buildings." Which is the populist way of saying that they had suspiciously large seasonal adjustment factors which have distorted the household survey versus the payroll survey.

Posted by: Stirling Newberry on February 10, 2004 07:59 AM

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Stirling: "Again looking at full time employment shows that many of the "jobs" are part time or unproductive self-employment, and the situation is far worse than the numbers would indicate."

How would you know that? Part-time jobs may be a separate survey category, but "unproductive" self-employment?

I think your judgement is correct, but can you point us to the evidence?

Posted by: cm on February 10, 2004 09:30 AM

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it seems that the seasonality of employment figures really helps the incumbent. inauguration day is near the trough and election day is near the peak. even if very few non-seasonal jobs are created (or not lost) between now and november the total employment number will not be less than the number when bush jr. was inaugurated. and as long as the job situation isn't disastrous, it will be easy to claim (truthfully) that 3 million or so jobs were created -- just don't mention that the vast majority of those will be lost again at the end of the holiday season.

Posted by: b1ff on February 10, 2004 09:56 AM

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Since that seasonal curve looks somewhat bumpy, I suspect they used X11/X12. The X11 method is not model based, and the variance is estimated separately from the seasonal adjustment. Alternative methods like the smoothness-priors-state-based methods advocated by Kitagawa and others overcome many of these problems and give a more accurate and realistic estimate of the seasonal component. See http://www.bls.gov/opub/mlr/2001/07/art4full.pdf for a discussion. Visiting scholars pointed out these problems to BLS way back in the early 1980s, but they took no heed and continued using X11. Finally it looks like things might change.

Posted by: A. Zarkov on February 10, 2004 08:59 PM

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Silence Or Compliance
Raymond Donald Pairan Jr.
Copyright (c) 2004 All rights reserved.

INTRODUCTION
This paper is just a further elaboration on some of the topics that I presented in my work entitled “The Economy” which I hope has inspired the moral, the passionate, and displaced future working slave class to start inquiring about their ultimate condition within the hands of the business/political elite. It is absolutely wonderful that certain members of the media have started to question the direction and motives of the business/political elite and have beat the bushes where they’ve been hiding thus exposing their true motives to the clear light of day. But make no mistake the business/political elite will stop at nothing to eliminate any opposition be it ethical government, the media, or any other encumbrance that inhibits them from achieving their goal of creating a subservient working class and a contrasting unencumbered business/political elite power base.

SILENCE/COMPLIANCE
At this point in time the media has the business/political elite (forgoing referred to as the controllers) on the defensive at least within the United States, which is in the mist of a presidential election year. Make no mistake the controllers would like to and will eventually silence all media dissent against their planned worldwide domination of all elements that can negatively effect their goal of sucking every last drop of revenue from the world into their realm. If this means devising a means of quelling dissent from those within the media that don’t wish to go quietly with the controllers view – so be it. Keep in mind that money and power are the driving force of the controllers and everything and anything that inhibits their eventual control over these elements in their eyes must be eliminated. This could mean the off shoring of media jobs to compliant outlets such as India where in the case of the English speaking world there exists a future working slave class that speaks English rather decently. The controllers could then eliminate media disseminated descent to their plans of complete global control over all the factors of production including the eventual working slave class. This means that no job is safe from the plans by the controllers to evolve all jobs into mere subservient, compliant, malleable factors of production. Time is limited for the controllers and others that support the free trade (code word – free) subjugation over all workingmen and women. The ideologue's within the future working slave class will blindly follow one another lock step onto the slave ship that will set sail for their future of no dissent, compliance, no morality, no freedom, no future but one of subservience. The time is very near at hand so those within the media that are the moral voice of dissent must take our case to a fever pace in order to expose and keep all rouses from becoming the new molded distorted facts that can be espoused by the controllers. For the controllers their religion is money and power because for them nothing else matters. If they can gain control over not only you the educated working, the hard factory working, the service sector working, then they will be free to build a truly worldwide free market economy where they are free to do what they wish when they wish it.

BEND THE TRUTH LIKE LIGHT THROUGH A PRISM
If you say something enough and if you change the dynamics and distort the facts to your liking then eventually it will be believed by enough people to become the truth. Basically, the controllers just prior to taking complete control over all media dissent will be hard pressed to dispute facts such as 3 million jobs lost in under 3 years, poverty within the United States at record high levels, whole town centers across rural America with a preponderance of vacant store fronts, a trillion dollar deficit, most states within budget crisis, a college education now getting further from the reach of most Americans, and the list goes on and on. Historically speaking when facts don’t convey what the power elite (in our case the controllers) wish than they just change the way those facts are presented so they convey a distorted picture favorable to those in control. This is nothing new and has been employed quite successfully by those in power many times in the past in the form of propaganda. We must maintain focus on the standard measures used within the past and not let the seeping of new measures (touted by the controllers) distort the facts.

THE TIME IS NOW
It is imperative that we work with the media while it is still free to convey the truth about the controller’s objectives and goals. Time is quickly running out for the average working citizen to maintain some semblance of influence over their respective governments. The controllers will and are gaining control over these governments covertly, directly, and through draining the government treasuries converting partially effective governments into impotent shells of past power. Once the controllers are finished with governments than even the political elite will be at jeopardy of becoming obsolete. So those within the political elite may be enjoying the fruits of soiled money conveyed to them by the business controllers but make no mistake once the business controllers have achieved their objectives they will dispose of even the political elite thus eliminating this drain on their coveted profits. There exists one goal of the controllers and that is to extract and drain as much wealth from the world as is possible. The controllers have no God, no religion, no morals, no scruples, and no conscience but only one overriding unquenchable desire – the complete control over all aspects of their bottom line. They will stop at nothing to satisfy their additive need to acquire more and more wealth at the expense of anything that gets in their way. Any worker that is currently employed by a firm that has global reach over its factors of production (and this doesn’t include many small to medium sized firm’s playing by the rules) are at risk of being eliminated. This includes every imaginable profession since there currently exists the technology and desire (by the controllers) to out source any profession – first and foremost the media (the thorn within the controllers side). It is imperative that in the next few weeks and months that all of us that count ourselves among the working class keep abreast of issues, meaningful relevant facts, and not be swayed by propaganda spewing from the controllers. We must make our voices heard through written, vocal, and peaceful dissent to the path that the controllers are leading us down. We must not and cannot follow the controllers blindly into a future of no government and working slave subservience. Remember the controllers will use key phrases such as “free market”, “household survey”, patriotism, and many others to sway global opinion towards their way of reasoning. Also, keep in mind there are many honest, decent, caring employers (mostly small, medium, and large sized businesses) that are playing by the rules and respect their workers, and communities. It is probably only a few but powerful firms making up the Fortune 500 that are the real controllers of a destiny of worker subservience. I will continue to write the unpopular truth be it what may come. You should continue to question, reason, and judge the facts and not be swayed by propaganda. Let the facts speak for themselves because they surely will if given the chance!

THE Economy (Off Shorings Effects)
Excerpts
Raymond Donald Pairan Jr.
Copyright (c) 1994 - 2004 All rights reserved.
Since the majority of employees have 'lower tier' occupations any such bifurcation of the U.S. economy results in a decline in the real wages of this group of workers reducing their consumption (if taxes are held constant) further resulting in a decline in their disposable income. With a decline in consumption a corresponding decline will occur in income for all firms. Declining income or losses will necessitate that firms reduce their expenses bringing down costs. With labor costs representing approximately 3/4's of all operating expenses firms reduce employment through layoff's or the closing of unproductive facilities.
As stated previously firms attempt to increase or maintain the compensation of the core element of their 'higher tier' workforce through the partial increase of stabilization of their 'higher tier' labor costs within the amount saved from the elimination of their least productive 'lower tier' workforce. This spiral of reduced consumption is a gradual process that could result in the further deterioration or elimination of the U.S. capital base has firms continually reduce output (through the elimination of both factors of production: capital and labor) in an effort to match supply with a deteriorating demand.

THE FIRST LEVEL UMBRELLA MODEL:
-r(-m) = s(wr) [-MPC[Y(C)]]

↑-r(↓-m) = ↓s(↓wr)[↓-MPC[↓Y(↓C)]]

↓Y = ↓C(↓MPC) + ↓I(-r) + Gn – NX Gn = Gs – T,
NX = Ex – Im
wr = real compensation
MPC = marginal propensity to consume
Gn = government spending net of taxes
Gs = gross government spending
T = taxes
C = consumption
Y = GNP or output
r = real interest rates
m = M1 money supply
s = savings rate
I = investment
Ex = exports
NX = net exports
Im = imports

The Sub-Level Model of the Poverty Level Under The First Level Umbrella Model:
P = f(Os, m, -Wm)
S = f(-Os, -m, Wm)
PV = f(-P, S, X2, X3, X4, -X5, X6, -X7, -X8, …S)
Wm = the number of workers employed in minimum wage jobs.
Os = occupations requiring skills other than those that are basic to all occupations.
PV = the poverty rate reflected in the number of poor families.
P = the number employed in primary sector occupations is inversely related to the poverty rate.
m = manufacturing industries
S = the number employed in secondary sector occupations is directly related to the poverty rate.
X2 = income inequality (measured by the Gini coefficient is directly related to the poverty rate).
X3 = the unemployment rate is directly related to the poverty rate.
X4 = the college/high school wage differential is directly related to the poverty rate.
X5 = the change in real wages is inversely related to the poverty rate.
X6 = long-term interest rates (as measured by 10 year Fed securities is directly related to the poverty rate).
X7 = the national output/income (as measured by GNP or GDP in foregoing analyses) is inversely related to the poverty rate.
X8 = the level of transfer payments to the poor is inversely related to the poverty rate.

Factual Data Supporting Variables

S:
Definition – A secondary sector occupation provides a level of compensation that is at or below the prevailing minimum wage and less than the median level of income (when the entire remuneration package is included). This type of occupation also employs more part-time employees than is typical for the average of other occupations and of these part-time employees there is a larger proportion of involuntary part-timers than is the average across occupations. The occupations are predominantly located in the retail trade, services (health, personal, entertainment and recreation, and business), and agricultural industries. Employee’s in these occupations are disproportionately younger, unskilled, female and or minorities and have a high school diploma (or GED) or less.
Table 4.8 and 3.24 clearly shows that a disproportionate percentage of part-time employment and involuntary part-time employment is concentrated in the two fastest growing industries of our economy: “Retail/Wholesale Trade and Personal and Business Services” [Mishel and Frankel, pages 104 & 136, 1991]. The two sectors where these industries are located also had the lowest median weekly earnings in 1989 of any other sector. [Mishel and Frankel, page 104, 1991].
According to a recent Department of Labor estimate in 1992 the number of part-time employees “in the temporary help services or help supply services industries more than tripled from 1979 to 1992. These workers are disproportionately young, female, and Black and tend to be in relatively low wage occupations.” [Commission on the Future of Worker Management Relations DOE, page 21, 1994]. Table 2 clearly shows that in 1983 the four industries with the highest percentage poverty rates were agriculture (26.78), retail trade (12.01), private household (22.45), and entertainment and recreation (10.75) [Williams, page 328, 1991]. There exists a direct correlation between the low wages of about two-thirds of the poor and their involvement in involuntary part-time employment or otherwise unemployment [Gardner and Herz, page 24, 1992]. In a 1987 study conducted by the Department of Labor it was estimated that “over half of all employees with earnings at the minimum wage or below were in service jobs, a field that accounted for three-quarters of the workers with wages below $3.35.” [Mellor page 37, 1987]. The same study concluded that the majority of workers receiving the minimum wage or less were women or minorities concentrated mostly in sales and service occupations [Mellor page 38, 1987].

P:
Definition – Primary sector occupations are mainly concentrated in the manufacturing sector but important primary occupations are also found in the service sector in data processing and computer oriented employment, executive, technical and professional specialties [Commission on the Future of Worker Management DOE page 7, 1994]. Occupations in this sector require a more enhanced level of skills and education than in secondary sector occupations. Among the various occupations in the manufacturing sector, supervisors and managers experienced growth in compensation while non-supervisory workers compensation fell –0.41% per year for the period from 1979-1988 [Mishel and Frankel page 259, 1991]. In fact overall compensation declined or remained stagnant in both the manufacturing and service sectors of the economy but relative to the manufacturing sector the service sector experienced the most extreme drop the result of the education/skill premiums demanded more and more of workers [Commission on the Future of Worker Management Relations page 27, 1994; Bradbury page 34, 1990].

X2:
“America and Britain saw the biggest widening in wage differentials … highest paid 10% of workers earned 5.6 times as much as the lowest paid 10% in 1989” (the latest figure available) up from 4.8% in 1980 [The Economist July 24th 1993]. By 1984 the number of “household heads” that had low weekly earnings as a proportion of all “household heads” that were expected to work increased to 26.1 percent from 19.4 percent between the period of 1967 to 1979 [Danziger and Gottschalk, 1986].

X3:
There exists a direct relationship between the poverty rate and the unemployment rate as the attached graph 2 portrays. The structural change that characterized the shift (or decline in manufacturing employment) and the subsequent rise in the share of service sector employment results in a higher proportion of continuing long-run unemployment (structural in nature) and the withdrawal from the labor force of an increasing number of workers (displaced workers) who ultimately increase the percentage of Americans falling below the poverty line [Williams page 324, 1991]. In a survey conducted by the Department of Labor in January of 1986 it was found that approximately ½ of all displaced workers (these workers are not even included in the unemployment figures) had lost jobs in the manufacturing industry [Horvath page 4, 1987]. The areas in the manufacturing industry were the most job loss occurred were primary metals, non-electrical machinery, and electrical machinery [Horvath page 4, 1987]. In 1984 a Department of Labor study (similar to the one conducted by Francis Horvath in 1987) concluded that the occupations experiencing the most job loss were operators, laborers, and fabricators that were also the most prevalent occupations within the manufacturing industry [Horvath page 5, 1987].

X4:
Between 1979 and 1987 the College/high School wage differential increased by an average of 18.7 percent [Mishel and Frankel page 93, 1991]. During this same period the real wages of college educated workers increased by 8% while the real wages of high school graduates actually declined by 4% [Mishel and Frankel, page 93, 1991].
These trends are indicative of a declining manufacturing base and the shifting of lower to middle class (high school educated workers) from good paying ‘blue collar’ manufacturing jobs to ‘low tier’ low paying occupations within the expanding service sector. The steep decline in compensation that these household head’s experienced as a result of being forced into ‘low tier’ service sector occupations could have resulted in a large percentage of them falling below the poverty line with the overall effect being an increase in the percentage of families falling below the poverty line from 1979 to current. The percentage of families falling below the poverty line did in fact increase from 9.2% in 1979 to 10.7% in 1987 [Department of Commerce Bureau of the Census]. Figure 31 clearly shows that since 1979 the real wages of high school educated workers have declined while the real wages of college-educated workers have increased [Mishel and Frankel page 99, 1991].
There exists a more enhanced demand for skilled workers relative to non-skilled workers than at any time in U.S. history and this is clearly reflected in the increasing real wage differential between college and high school educated workers. The more highly skilled of either the college or high school educated workers earned more than the less skilled within each classification [Murphy and Welch page 285, 1992]. Holding the level of educational attainment constant, the more on the job training that a worker brings to a new position the higher the worker’s overall compensation. But there exists a perverse relationship between the level of on the job training a worker receives and the worker’s level of educational attainment: the higher the level of educational attainment the more on the job training the worker receives. Therefore there seems to be a correlation between the increase in the college/high school wage differential (over the 1979-87 period) and the increased bias by firms for highly skilled (college educated) workers (since these workers receive a disproportionate share of on the job training) over unskilled or minimally skilled (high school educated) workers [McConnell and Brue page 422, 1992].

X5:
From 1980 – 1989 real wages for all workers fell more than 9% while compensation fell by about 10% [Mishel and Frankel, page 69, 1991]. For production and non-supervisory workers real earnings declined at an average of –0.7% from 1973-1993 which equates to an overall decline of 14% for the 20-year period [Commission On The Future of Worker Management Relations, May 1994]. In 1992 18% of the U.S. full-time working population earned less than $13,091 representing a 50% increase from the 12% that received low earnings in 1979 [Commission On The Future of Worker Management Relations, May 1994]. The Commission further noted that:

The stagnation of real earnings and increased inequality of earnings is bifurcating the U.S. labor market, with an upper tier of high wage skilled workers and an increasing “underclass” of low paid labor…A healthy society cannot long continue along the path the U.S. is moving with rising bifurcation of the labor market [Commission On The Future of Worker Management Relations, pages 19 & 26, May 1994].

Real earnings among our poorer members of society, relative to real earnings of the bottom decile in other industrialized nations are more reflective of a peasantry to noble relationship of divergence in societal economic terms than should correspond to a mature industrialized nation. In 1993 real earnings for U.S. male workers in the bottom decile were only 38% of median earnings while their counterpart in the industrialized countries of Europe were earning 68% of the median earnings [Commission On The Future of Worker Management Relations, May 1994]. While compensation for the less well off of our society was abhorrently low when compared to other industrialized nations the U.S. ‘upper tier’ workforce (workers in the top decile) received compensation that was 2.14 times the median earnings, with their counterpart in the industrialized countries of Europe earning 1.4 to 1.7 times the median [Commission On The Future of Worker Management Relations, May 1994].

X6:
Higher nominal interest rates (such as those experienced from 1979 into the 1980’s) are directly related to the increased percentage of American’s that have fallen below the poverty line since this period. This is because unemployment (which is directly related to nominal interest rates) affects a larger percentage of the poor because of their precarious position (relative to skills and education deficits) [Ryscavage and Henle, 1990]. Therefore when economic conditions worsen the working poor and /or low-income earners are the first to feel the effects by being the first to be laid off or terminated.
The wealthy are affected quite differently from the effects of increased nominal interest rates: they benefit from the upward mobility in interest rates. That is because higher income families hold a higher proportion of interest bearing assets in the form of company sponsored non-cash benefits (stock options) or other investments [Ryscavage and Henle, 1990; Bradbury, 1990]. These benefits accruing to the wealthy in the 1980’s took the form of higher interest and dividend income [Bradbury, 1990].

Posted by: Raymond Pairan Jr on March 7, 2004 01:10 PM

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You cannot learn without already knowing.

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