Brookings on Job Numbers

# Strong jobs growth continues in July

## Jonathan Wright

### Professor - 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.

2017-July 209 224 197 +12 207
2017-June 231 238 232 -1 242
2017-May 145 131 162 -17 148
2017-April 207 194 166 +41 164
2017-March 50 24 112 -62 85
2017-February 232 251 208 +24 220
2017-January 216 202 196 +20 187
2016-December 155 168 156 -1 160
2016-November 164 171 171 -7 176
2016-October 124 132 123 +1 136
2016-September 249 237 261 -12 248
2016-August 176 179 166 +10 176
2016-July 291 299 299 -8 298

Note: Changes in previous months’ numbers reflect revisions to the underlying data.

[1] Applies a longer window estimate of seasonal effects (see Wright 2013).

[2] Includes seasonal and weather adjustments, where seasonal adjustments are estimated using the BLS window specifications (see Boldin & Wright 2015).

[3] BLS Official number less the Seasonal and Weather Adjustment number.

[4] 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.