8/2/2019 Analysis: Quirks in jobless data could bite Obama
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Analysis: Quirks in jobless data could biteObama
(Reuters) - The sharp winter decline in the unemployment rate
has put a spring in President Barack Obama's step ahead of his
re-election bid. But
some economists think quirks in the jobless data mean progress
could stall out soon.Several Wall Street economists believe the
government is mismeasuring seasonal shifts in the labor market, and
suggest the jobless rate's sharp winter drop was partly an
illusion.
If their research is on the mark, the unemployment rate could
change little in the coming months as pay back, robbing the Obama
campaign of what otherwise might have been steady progress in the
lead up to the election.
That could deny Obama the crucial support of swing voters in
battleground states who might be swayed by a fall in unemployment
in the months before the election.
"We think that the improvement over the last few months
dramatically overstates the underlying improvement," said Andrew
Tilton, an economist at Goldman Sachs in New York.
"You will not see that rate of improvement going forward."
Goldman Sachs expects the jobless rate to end the year at 8.2
percent, barely below January's reading of 8.3 percent.
The unemployment rate has fallen by six-tenths of a percentage
point from October's level of 8.9 percent.That is an unusually
rapid decline and a growing band of optimists expect it to fall
below 8 percent by year end.
But the recent steep drops have puzzled analysts who question
whether the economy was growing fast enough to bring unemployment
down so quickly.
Searching for an explanation, several Wall Street economists
have crunched the unemployment numbers and now believe the darkest
days of the 2007-2009 recession left a lasting impact, distorting
the outcomeof the government's adjustments for normal winter lulls
in employment.
The government uses computer programs to filter out seasonal
changes like the drop in construction jobs every winter. Without
these adjustments, it would be harder to gauge the health of the
labor market, as
8/2/2019 Analysis: Quirks in jobless data could bite Obama
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the jobless rate might rise every winter when it gets too cold
to work outside. The raw unadjusted rates rose in both December and
January, for example.
But because the computer programs make adjustments based on what
happened in the recent past, themillions of jobs lost during the
winter of 2008-2009 may have tricked the machines into expecting
thewinters that followed would be similarly bad.
And when the raw data for jobless rates did not rise as much as
expected this winter, the computer programs appear to have
over-adjusted the data downward, resulting in big drops in
unemployment, JPMorgan economist Michael Feroli wrote in a note on
Tuesday. In hindsight, some researchers on Wall Street argue the
same effect was present last winter.
Even the Federal Reserve is puzzled by the sharp declines in the
jobless rate. Fed Chairman Ben Bernanke has said officials do not
expect further substantial drops this year, and economists at
thecentral bank are studying what lies behind the recent apparent
improvements in the labor market.
February jobs numbers are due on Friday and the unemployment
rate is seen holding steady.
AUTUMN HEADWINDS
Potentially worrisome for Obama, who stands for re-election on
November 6, is that the Wall Street research suggests the seasonal
adjustments make it less likely the unemployment rate will
continuedeclining through the summer and fall.
According to Nomura's research, this effect could be pronounced
in the October employment report dueon November 2, four days before
the election. Even if the underlying jobs market is slowly
improving, theseasonal adjustment could make a mediocre October
jobless rate climb upward.
"You could see a rise in unemployment a few days before the
election," said Jeff Greenberg, an economist at Nomura in New
York.
The government analysts who produce the data defend their
methods for adjusting the numbers. Somereal shifts in seasonal
employment may have taken hold during the recession, meaning the
winter of 2008-2009 may not have been an anomaly.
They argue that excluding the grim winter of 2008-2009, as the
Wall Street economists have in their research, is a judgment call
that might eventually prove to be wrong
"We don't want to change our seasonal adjustment methodologies
on the fly," said Tom Nardone, who
helps oversee the Labor Department's efforts to measure
employment.HIGH STAKES
Still, the department has made changes to other procedures after
getting stung by the recession. Last year, it tweaked the way it
estimates how many companies are starting up or closing down.
Problems with a prior model led the government to underestimate job
losses in 2008 and 2009.
Other organizations are also modifying their reports to take
into account seasonal adjustment issues.
The private Institute for Supply Management in January revised
seven years of data on manufacturing and the service sector,
tweaking the way it seasonally adjusts the readings to treat parts
of the winter of 2008-2009 as anomalous.
The Fed made similar adjustments last year to its data on
industrial output. And the U.S. Census Bureau,which collects much
of the economic data released by the government, is also looking
into the recession's
impact."The Census Bureau is fully aware of the particular
challenges the Great Recession posed in these
procedures," Mark Doms, the agency's chief economist, said in an
e-mail.
Seasonal adjustment issues would not be enough to change the
unemployment rate's long-term trend. Themath involved takes gains
from one part of the year and moves them to another. But they could
takeaway some of the recent wind gathering in Obama's sails.
No U.S. president since World War Two has won re-election with
an unemployment rate above 7.2 percent. Some political analysts,
however, say it is the direction of the unemployment rate, rather
than its level, that matters most to voters.
If the seasonal adjustment bites into labor data in the fall, it
might affect the decisions of voters who don't already lean toward
Republicans or Democrats, said James Thurber, a political scientist
at American University in Washington.
