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Jobs Questions

Feb 4, 2012 • Businesses, Demand, Supply, and Markets, Labor, Macroeconomic Measurement • 192 Views    No Comments

Hearing that the U.S. economy gained 243,000 jobs last month, wouldn’t you think that there were 243,000 more jobs?

NY Times financial journalist Floyd Norris explains that actually, the economy LOST 2,689,000 jobs. But, it would be misleading for the Bureau of Labor Statistics (BLS) news release to report the real number because of seasonal fluctuations in the jobs market. Holiday hiring during every December inflates the numbers and then they quickly deflate during January. To compensate for data that would have obscured our true economic trajectory, the numbers were seasonally adjusted…from -2,689,000 to +243,000.

However, not everyone agrees on the appropriate approach to seasonal adjustment. And that returns us to the problem with statistics. Seemingly objective, a close look (as with college ranking) reveals much more.

The Economic Lesson

If you saw more job creation during December 2008, you could have concluded that the economy had entered the road to recovery. However, knowing the holidays were the reason, and that it happened every December, you might have changed your mind. Called seasonal variation, adjusting monthly data to let us see where the economy is going is perfectly explained by the Dallas Fed here. The graph that they include with a seasonally adjusted and a seasonally unadjusted line ideally displays the difference between the two.

An Economic Question: Before looking at the Dallas Fed’s graph, draw an unemployment graph with unadjusted data for an economy experiencing a worsening recession during one year. Then, eliminating the temporary economic impact of summers and holidays, draw a second unemployment graph for the same year.

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