Johns Hopkins University
The Bureau of Labor Statistics (BLS) employment report released today shows that 209,000 new jobs were added in July. In this blog post, I put forward three alternative projections for job growth in July 2017, each of which was calculated using methodology outlined in my past research. Applying a more stable seasonal adjustment to the raw data, and accounting for the effects of weather on employment yields 207,000 jobs, nearly identical to the BLS Official number.
Calculating the Alternative Seasonal Adjustment
Monthly job gains and losses can indicate how the economy is doing once they are corrected to account for the pattern the BLS already expects in a process called seasonal adjustment. The approach for this seasonal adjustment that is presently used by the BLS puts very heavy weight on the current and last two years of data in assessing what are the typical patterns for each month.
In my 2013 paper “Unseasonal Seasonals?” I argue that a longer window should be used to estimate seasonal effects. I find that using a different seasonal filter, known as the 3×9 filter, produces better results and more accurate forecasts by emphasizing more years of data. The 3×9 filter spreads weight over the most recent six years in estimating seasonal patterns, which makes them more stable over time than the current BLS seasonal adjustment method.
To produce the Alternative Seasonal Adjustment, I calculate the month-over-month change in total nonfarm payrolls, seasonally adjusted by the 3×9 filter, for the most recent month, which you can see in table below. The corresponding data as published by the BLS are shown for comparison purposes. According to the Alternative Seasonal Adjustment, the economy added 224,000 jobs in July, 15,000 above the official BLS total of 209,000.
Calculating the Seasonal and Weather Adjustment
In addition to seasonal effects, abnormal weather can also affect month-to-month fluctuations in job growth. In my 2015 paper “Weather-Adjusting Economic Data,” Michael Boldin and I implement a statistical methodology for adjusting employment data for the effects of deviations in weather from seasonal norms. This is distinct from seasonal adjustment, which only controls for the normal variation in weather across the year. We use several indicators of weather, including temperature and snowfall.
Temperatures in July were roughly ½ °C warmer than the historical average, resulting in a small positive weather effect of +12,000 jobs, which translates to a Seasonal and Weather Adjustment estimate of 197,000 new jobs.
Combining the Alternative Seasonal and Weather Adjustments
My Alternative Seasonal Adjustment shows higher job gains than reported by the BLS, but the Seasonal and Weather Adjustment shows lower job gains. One can indeed do the two adjustments jointly—both adjusting for weather effects and using a longer window. This is shown in the far-right column of the table labeled Combined Alternative Seasonal and Weather Adjustment.
Making both adjustments, the employment change in July was an increase of 207,000 jobs, which is very close to the BLS Official number. The economy has added an average of 179,000 jobs through the first 7 months of 2017, according to the Alternative Seasonal and Weather Adjustment, below last year’s pace of 200,000. But all things considered, July 2017 was another strong month for jobs growth.
|Thousands of jobs added||BLS Official||Alternative Seasonal Adjustment||Seasonal and Weather Adjustment||Weather Effect||Combined Alternative Seasonal and Weather Adjustment|
Note: Changes in previous months’ numbers reflect revisions to the underlying data.
 BLS Official number less the Seasonal and Weather Adjustment number.
 Includes seasonal and weather adjustments, where seasonal adjustments are estimated using a longer window estimate.
The author did not receive financial support from any firm or person for this article or from any firm or person with a financial or political interest in this article. He is currently not an officer, director, or board member of any organization with an interest in this article.