Friday, April 6, 2012

The Smooth Smoothing Operator

The latest employment numbers from the BLS show a dip in the number of people hired. It's impossible to making anything out of one month of data, many, many things can explain a one month dip, including faulty BLS seasonal adjustments. As far as I am concerned, the economy will remain in a general uptrend until the Fed slows money printing.

That said, I still get a kick out of the smooth operators. Paul Krugman, of course, is the king with his smoothed three and four year inflation rates, but I did get a kick out of former Obama administration economist Jared Bernstein's smoothing effort, today.

This is what the actual (seasonally adjusted) numbers look for job increases, as reported by the BLS:

This is Bernstein's attempt at a possible explanation for the dip in job additions:

Seasonality could be playing a role in the disappointing March results.  This past winter was the fourth warmest on record, but how does that play out in the jobs report?  Retail trade provides a useful example.  Stores that expect less traffic in cold months will downsize their staffs in the winter and boost hiring in the spring.  Thus, the seasonal adjusters will add employment to the non-seasonal retail count in the winter and subtract it in the spring. 
But in an unseasonably warm winter, stores will move their spring hiring up a few months—folks who would have been hired in March were instead hired in Jan or Feb.  In that case, the seasonal adjustment artificially boosts the earlier months and lowers the count for March.
The best way to control for that possibility is to average over the past three months.  Given that March data completes the first quarter of the year, average monthly growth in this quarter was 212,000 per month, compared to 164,000 per month in the prior quarter (2011q4).  So, smoothing out possible anomolies, we still see a clear acceleration in job growth.
This is all possible, but Bernstein is just spinning things out of thin air, he has no real idea if seasonality had anything to do with the dip. But nevertheless he does take the big step and smooths everything out, to get a nice uptrending bar chart, despite the fact that this month's numbers fell of a cliff (and may boost sales a bit for Krugman's upcoming book)

Again, I am of the view that the economy will continue in a general uptrend until the Fed stops printing, but don't take any one piece of data too seriously. There's a thousand ways it can be spun. As I have said in the past, watch market data first, i.e. is prices, then data coming out of individual corporations, then private sector  collected data (Billion prices index, ADP, Monster Index) and then government collected data and then smoothed government collected data and one month's government data.

1 comment:

  1. Robert,

    Have you considered the possibility that maybe the current "high" rate of money creation is not enough to sustain the decades in making distorted economy?

    Money creation has slowed down a little in recent months. Maybe we're so close to the end game that any tiny dip in M2 will bring about noticeable corrections?