Seasonal Adjustments Highlight Market Swings

In the three years since the market crash and subsequent recession, the economy has followed a consistent pattern of better-than-expected spring months and worse-than-expected summers. Economists are now wondering if the fluctuations are being exacerbated by the Census Bureau's formula for seasonal adjustment, which may have been thrown off by the severity of the 2008 downturn.

The economic picture in the first half of 2012 has been defined by a stronger and busier than expected winter, followed by a substantial slowdown in the summer. This is the third year that the same general trend has occurred, leading some analysts to theorize that the jumps and jolts have as much to do with the way the numbers are read as the numbers themselves.

The U.S. Census Bureau?EUR??,,????'???s algorithm to calculate seasonal adjustments, called X12, is increasingly being questioned due to the intensified seasonal swings. The Nomura Group, a financial services company that tracks 'economic surprise', has suggested that the market contraction during the last and first quarters of 2008 and 2009 respectively has been incorrectly factored into the X12 algorithm as a change in seasonal patterns. Census Bureau statistician Tucker McElroy proposed a new, non-linear system for calculating seasonal adjustments at the end of May, but there is no indication that the new system is being considered, or that the Census Bureau is planning adjustments to their formula.

When the seasonal adjustment is removed from the Bureau of Labor Statistics' raw data, Domestic payroll employment was up 1.3 percent year-over-year in June. The pace of growth slowed slightly from the year-over-year gains of 1.6 percent in February, but June's figure is still better than most of 2011. The unemployment rate in June, at 8.2 percent, is also an improvement over the 8.5 percent level from a year earlier.

The number of job openings in May could also underscore a lesser slowdown than some were expecting. After a 294,000 drop in April, the number of positions waiting to be filled climbed by 195,000 in May to 3.64 million, according to Labor Department statistics released July 10. Though consumer confidence is still on the decline, an improving housing market and falling gas prices represent bright spots in what has become an increasingly gloomy picture.

Of course, the seasonal adjustments do not explain away the ongoing struggles within the economy. Many industries that appear to be on the rebound are still nowhere near the output levels found in a healthy economy, and other lackluster indicators, like the downwardly revised 1.9 percent GDP growth in the first quarter, continue to cloud over any rays of market sunshine. It is important to note, however, that even though growth is slow and job creation is uneven at best, the sky has not yet fallen in.