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Friday, December 03, 2010 2:18 PM

Explaining last Month's Jobs Upside Surprise and this Month's Downside Surprise

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One reason economists are frequently surprise is they have a tendency to extrapolate every economic uptick perpetually into the future yet they seldom do the same for negative news.

I have no idea why this is so, but history certainly suggests that it is so.

Last month, economists were giddy over retail hiring but I commented several times that I did not think it was sustainable. Today Calculated Risk has a very nice chart that shows that to be the case.

It's easier to see what is happening if you unstack the chart. I did not go back to the actual data but I did move the bars around.

Holiday Season Hiring Unstacked

Looked this way, last months seasonal hiring was not that great. I discussed this on November 15, in In Search of 1.1 Million Jobs Claimed by Obama; Where the Hell are They?

151,000 Jobs In October? Really?

Inquiring minds just might be wondering how we created 151,000 jobs in October. As it turns out, about 100,000 of them was a seasonal adjustment, and I am not even talking about the much maligned BLS Birth-Death Model that 10 months out of 12 presumes the economy added jobs that no once can see.

I am talking about regular "seasonal adjustment" factors, and last month was a doozie.

The latest issue of Barrons discusses the The magic of seasonal adjustment.
THE JOBS REPORT FOR OCTOBER was released by the Bureau of Labor Statistics on Friday, and at first blush was surprisingly strong, much stronger, indeed, than expected. Payrolls expanded by 151,000 and the two previous months' were revised upward. But hold the hurrahs.

Happily, the always astute Stephanie Pomboy of MacroMavens provided a quickie explanation:

"The seasonal bar which the payroll data must jump was (inexplicably and dramatically) lowered from prior Octobers."

Thus in October 2009, the BLS set the bar at 870,000 jobs, similar to the 840,000 it anticipated in October 2008. This year, by contrast, it lowered the bar to 768,000. Mumbo, jumbo, payrolls presented "an upside surprise" of 100,000.
In the Nick of Time

Ignoring 2008, November seasonal hiring was the was the worst going back to 1993 or so. October beats 2002 but only because retailers started seasonal promotions earlier. Hooray.

Inexplicably, the BLS dropped the bar for October seasonal adjustments. This month we see the opposite effect, just in the nick-of-time I might add, to allow this lame-duck Congress time to reconsider extending unemployment benefits.

Mike "Mish" Shedlock
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