Unemployment number decline is all about seasonal adjustments

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A lot of people are questioning the unemployment rate of 9.7% in the face of a –20,000 non-farm payroll print.  How could we be losing jobs and have the unemployment rate drop? It would seem people are dropping out of the labor force.

However, I have now parsed the household survey data and most of the data seems reasonable. The labor force participation rate actually ticked up slightly (both seasonally adjusted and unadjusted) – as did the number of people not in the labor force who wanted a job (unadjusted only). This is what we would expect.

What sticks out is the seasonal adjustment for the number of persons employed and unemployed. 

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In December 2009, there were 15.267 million people unemployed on a seasonally-adjusted basis.  This ticked down to 14.837 in January 2010, a fairly large drop of 430,000. Meanwhile the unadjusted numbers go the other direction – massively. In December 2009, the number of unemployed persons was 14.740 million. This rose 1.4 million to 16.147 million.  Therefore, we saw a swing of over 1.8 million between what the unadjusted and the seasonally adjusted data are saying about who’s unemployed. The number of people employed increased by over 500,000 on a seasonally-adjusted basis, while it decreased by over 1.1 million on an unadjusted basis. That’s a swing of 1.6 million.

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Bottom line: the unemployment rate downtick has nothing to do with people dropping out of the workforce; it is an statistical aberration due entirely to seasonal adjustments in the household survey in the number of people employed and unemployed.

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