Weekly Unemployment Initial Claims: That Pesky Spring Fever Seasonal Adjustment Factor!
Thursday is weekly initial unemployment claims day. That is, the Department of Labor Employment and Training Division publish the unemployment claims numbers from the previous week, and it updates prior weeks' unemployment claims numbers. The pundits wail or exclaim and sometimes the stock market goes up and down depending on these weekly numbers. Today the numbers went up. That is, the seasonally adjusted initial claims numbers.
Now, as usual, the DOL incorporates a seasonal adjustment or weighting factor, as more people are generally laid off during certain weeks or during certain times of the year. This is the only way that we can get a clear idea of whether claims are going up or down over time.
The seasonal adjustments can be puzzles.
The seasonal adjustments can be puzzles.
Though the seasonal adjustments are very necessary, they also present conundrums for jobs-numbers watchers such as myself. The seasonal adjustment factors for weekly claims are more volatile than they are for the monthly numbers. The DOL anticipates that there are certain weeks of the year in which claims will be much higher than perhaps the week before or the week after. Seasonal adjustment factors are determined and published about a year in advance. You can see them HERE. Type in a year range and hit "Submit". You can see those weekly seasonal adjustment factors lined up in the middle column of the initial claims numbers labeled "S.F". You will notice that they range from the 70's up to the 170's. The real "raw" unadjusted number of initial claims is divided by this seasonal adjustment factor to get the initial claims that are reported by the media.
Adjustment factor high, claims adjusted down. Adjustment factor low, claims adjusted up.
If the adjustment factor is over 100, the number of claims are being adjusted down, as this is traditionally a high claims week. If the adjustment factor is below 100, the number of claims are being adjusted up, as this is traditionally a low claims week.
Now, over a year or a period of weeks, this will all work out, and we'll get a good sense as to whether or not the number of claims is going down or up. But take any one week... and it will be hard to read anything into these numbers.
That April anamoly.
Which brings us to the first and second weeks of April.
Spring as a whole is a low claims season. Companies have laid off all of their Christmas and holiday season help and are they starting to hire people for spring.
Starting in mid-February, the adjustment factors are generally below 100 (low claims) and claims are adjusted up. Except for the first or second week of April. The seasonal adjustment factor jumps up above 100 during the first or second week of April, and the DOL expects an increase of about 60,000 up to 90,000 claims between either the last week of March or between the first and second weeks of April. Warmer weather? Easter? Passover? The start of baseball season? Daffodils blooming? The end of the first calendar quarter? Anyway, after the second week of April, the claims start to come back down and the seasonal adjustment factor falls down below 100.
This year we did get the expected bump of 60,000 claims at the beginning of April, which was reported today, but the seasonal adjustment factor was only 100.6, not the 107.7 that it was last year. It's got something to do with the fact that the week (Saturday) ended April 7 last year vs. April 8 this year. (That doesn't make much sense, but if you look at the pattern of the seasonal adjustment factors over a period of years, you will see that is true.)
So, if you divide the (expected) higher "raw" number of claims last week, 381,875, by the seasonal adjustment factor of 100.6, last week's initial claims come out to 380,000 in adjusted numbers, which is a jump of something like 13,000 first time claims in seasonally adjusted numbers.
Now.. The seasonal adjustments aren't always right. They are impacted by weather, which can't be predicted in advance, politics, strikes; all kinds of miscellaneous events. Last year there was also a jump of about 90,000 in "raw" claims numbers during that first to second week of April, resulting in an adjusted increase of only 16,000 because the adjustment factor was higher. The last year that the week ended on April 8th, as it did this year, was in 2006. There was an increase of 61,000 "raw" unadjusted claims, resulting in a seasonally adjusted increase of only 8,000. Again, the adjustment factor was higher than it was this year.
Well, it would be great if anyone who starts whining about "unemployment claims are going back up" cares, but I know that's not going to happen soon.
What difference does the adjustment factor make? Well, if the adjustment factor this year was 107.7, as it was last year, that would mean that the 381,875 "raw" unadjusted claims would be reported as about 355,000 seasonally adjusted claims (instead of 380,000), a decrease of something like 12,000 and the headlines would be calling out "Unemployment claims down again!" in a very positive context. If we used the 105.2 adjustment factor that was used the last time that the week ended on April 8th, as it did this year, those 381,875 claims would adjust down to 363,000 initial claims, a decrease of 4,000 initial claims.
So there are two morals to this story:
- Seasonal adjustments, while important and necessary over time, may skew results on a week-to-week basis; therefore, weekly unemployment initial claims numbers need to be taken with a grain of salt.. due to their variability.
- Be careful of the naysayers! There are many people out there who want to jump on any hint of bad news in an attempt to give the country back to the Republicans so that they can continue their rich sponsors' decimation of the middle class. It sounds extreme, but I don't know how else you might want to explain the corporate takeover of the U.S.