Over the weekend I received an email from Irishscot2, a poster on MarketWatch, regarding seasonal adjustments to the unemployment rate.

Hi Mish



I believe the seasonal adjustment is no longer valid given that anticipated job creation down the road has not and will not be happening. I expect late spring to reverse the January effect heading into the elections. If so, a perfect political storm brewing because of their models!



Irishscot2



Irishscot2

Seasonally Unadjusted Unemployment vs. Unadjusted Unemployment

Unadjusted Unemployment Minus Seasonally Adjusted Unemployment

Seasonal Adjustment Highlights

There is always a big BLS adjustment in January

There is always a reversion to the mean that overshoots to the downside between March and April

There is always a secondary rebound back above the 0.0% line in July, followed by a smaller overshoot to the downside in October.

Real World Analysis

TrimTabs employment analysis, which uses real-time daily income tax deposits from all U.S. taxpayers to compute employment growth, estimated that the U.S. economy shed 104,000 jobs in January. Meanwhile, the Bureau of Labor Statistics (BLS) reported the U.S. economy lost 20,000 jobs. We believe the BLS has underestimated January’s results due to problems inherent in their survey techniques.



While the BLS originally reported job losses of 4.2 million in 2009, TrimTabs reported 5.3 million, a difference of more than a million lost jobs.



Since July 2009, TrimTabs estimates and the BLS estimates have diverged again. While the tax data points to a weak job market, the BLS estimates point to a steadily improving job market. We believe the job market is much worse than the BLS is reporting and that in January 2011, when the BLS revises their estimates for 2010, their April 2009 through December 2009 results will move much closer to TrimTabs’ results.



The BLS has seriously underreported job losses for the past two years due to their flawed methodology. TrimTabs has identified the following four problems:



1.The BLS employment estimate is based on a survey, and not on an actual count of employees. While the BLS survey is large and supposedly designed to capture the complex nature of the employment market, it is still a survey and therefore subject to error. TrimTabs believes that rapid changes in an employment cycle cannot be captured by surveys.



....



Real-Time tax withholding data shows that wages and salaries declined an adjusted 1.0% y-o-y. In January 2009, wages and salaries declined 5.0%. If the labor market were improving, we would expect a positive year-over-year growth rate. The fact that tax withholding data is still declining year-over-year suggests that the labor market is still contracting.