The great thing about statistics is that you can make them say whatever you want them to say.
The BEA took this to a whole new level last year with the introduction of “residual seasonality” which effectively allows the government to double-seasonally-adjust economic data. Here’s how the BEA explained it:
“The Bureau of Economic Analysis (BEA) is working on a multi-pronged action plan to improve its estimates of gross domestic product (GDP) by identifying and mitigating potential sources of ‘residual’ seasonality. That’s when seasonal patterns remain in data even after they are adjusted for seasonal variations.”
Got that? No? Us neither. Sounds like something China would do, only China doesn’t bother explaining this kind of thing with opaque statistical speak – they just report whatever numbers they see fit and call it a day.
Well when it comes to the August jobs report (which, you’re reminded, may ultimately determine whether the Fed chances a stealth hike next month), several desks have noted the possibility that the print comes in weak (see here and here). Now, Barclays is out echoing those concerns, but the bank says the culprit is … you guessed it, residual seasonality. Here’s more:
“Our outlook for a September rate hike is vulnerable to a disappointing August employment report and a data-dependent Fed. Over the past five years, August employment has been somewhat weaker than in the surrounding months. At an average of 90k per month since 2010, using as reported employment data, August is the month with the slowest job growth of the year. It is reasonable to ask whether our Fed call is vulnerable to a seasonal August hiring slump.”
“We find seasonality in hiring since 2010 appears to have been primarily due to genuinely low employment growth in the early stage of the recovery. The fading of the inventory bounce, disruptions to oil production, natural disasters in Japan, and the European debt crisis suppressed hiring in these years in a manner that could masquerade as improper seasonal adjustment. If we exclude 2010 and 2011 from the sample period, August hiring is only marginally lower than adjacent months.”
See there? If you just strip out the bad years and account for bad “adjusting,” August is only “marginally” worse.
But remember what Citi said: “…it is the initial print that is the market driver at the time.”