Earlier this week I expected the January jobs report to indicate that the economy “added” between 250,000 and 300,000 jobs. My forecast was premised on BLS continued use of a much larger seasonal adjustment factor. The BLS appears to be using a more conventional seasonal adjustment factor in 2013 than in 2011 and 2012. This should mean fewer ups and downs in the jobs reports in 2013 due to seasonal noise.
The BLS seasonal adjustment procedure is a moving average process: seasonal factors change over time. January is the weakest month of the year for jobs. Therefore the seasonal factor for January inflates the payroll employment total in order to account for the anticipated drop in employment after the holidays. The following chart shows how much the BLS seasonal factors have inflated employment in January from 2001 to 2013. The lowest seasonal adjustment was +1.522% in 2009. The ten-year average adjustment from 2001 to 2010 was 1.573%.
The BLS attributed none of the severity of the downturn in January 2009 to a large seasonal effect at the time. As the previous chart indicates the BLS actually viewed January 2009 as the mildest January in a decade; that is why employment was adjusted up by only 1.522%, much less than in other years. The steep employment decline in January 2009 has an echo in two to three years. The BLS X-12 ARIMA model for seasonal adjustment incorporates the loss of 3.7 million jobs between December 2008 and January 2009 as evidence that the seasonal “January effect” in employment had increased. Consequently the seasonal adjustments for January 2011 and 2012 were +1.66% and 1.65% in order to offset the apparently larger “january effect”. The 2011 and 2012 adjustments were the largest for January since 1965.
The following chart shows that the January seasonal adjustments added about 100,000 more jobs in 2011 and 2012 compared to the application of a longer run (10 year) average of seasonal effects. The chart also shows that the January effect for 2013 (+1.598%) is only slightly above the ten-year average. The large employment decline in January 2009 had a minimal impact on the adjustment factor last month, adding only about 33,000 more jobs.
157,000 additional jobs in the past month, with 33,000 of the gain due to a generous seasonal adjustment, indicates that the job market is weak. The good news on Friday came from the adjustments to the payroll reports for late 2012. The January 2013 report is subject to more revisions. At this point in the recovery, with the unemployment rate hovering near 8%, payroll employment growth of less than 200,000 per month is disappointing.