X-12 Arima Is Back: A Look At ADP's "Seasonal Adjustment" Protocol

Tyler Durden's picture

You know it: our old friend the BLS's very own Arima X-12 makes a very unexpected appearance. Why a private entity, the ADP, which has no links to the Bureau of Labor Statistics is using the same adjustment process used by the government agency, to divine its final, seasonally adjusted number, especially when it refuses to disclose its unadjusted data, is anyone's guess. Or is the ADP number now nothing but a reinforcing surrogate to double the credibility of the BLS data, whose credibility in recent months has also hit unseen lows? It certainly would explain the recent revision in ADP methodology, and the fact that administration sycophant, Moody's Mark Zandi is now the "brains" behind this meaningless number (not to mention the resulting humiliation for all those who had though that ADP data, like that from the NAR, is even remotely credible).

From the ADP's "Methodology-Full Detail"

Seasonal adjustment


Employment growth in each of the 90 size class/industry cells is seasonally adjusted using the Census Bureau’s X-12 ARIMA method, with the default ARIMA outlier criterion modified to resemble the corresponding CES criterion. Deseasonalized trends for the industrial cells are recalculated with each new month of data.


Each observation in an industrial cell is then compared with the trend value, and outlier observations are removed. Matched employment growth for the 90 size classes is calculated for the second time using the cleaned data. Each cell employment growth is seasonally adjusted again using the same X-12 ARIMA method.


An additional adjustment is made for months in which there are five weeks between survey reference weeks. This is done by regressing the growth rate in each cell on a dummy variable, which if significant, is used to eliminate the long-month effect.

And where it gets funnier:

Regression and Results


Moody’s Analytics uses a restricted structural VAR model to estimate the monthly change in private payrolls by regressing the most recent payroll growth reported by the BLS for each super sector on a constant term and: (1) ADP matched-pair growth rates by industry; (2) lagged values of BLS estimates of growth of employment by industry with industry specific restrictions; and (3) the Philadelphia Federal Reserve’s Aruoba-Diebold-Scotti Business Conditions Index (ADS). The equations for all industries are estimated simultaneously. Thus, the model is made up of 10 endogenous variables—the 10 BLS super sector industries, and 11 exogenous variables—the 10 ADP super sector industries and the ADS index.


The ADS index was chosen because it incorporates the timeliest data and is updated on a daily basis as new data are released. The estimation uses a weekly average of the daily index for the week that includes the 12th of the month. The index is based on the following seven indicators: weekly initial jobless claims, monthly payroll employment, industrial production, personal income less transfer payments, manufacturing sales, trade sales, and quarterly real GDP. The average value of the ADS index is zero.


Progressively bigger positive values indicate progressively better-than-average conditions, whereas progressively more negative values indicate progressively worse-than-average conditions. The index is seasonally adjusted,

... Aaaaaand that's where it ends. Cut off mid sentence. Dont believe us? Check page 3 of 10. And this is the source of the "data" used by the likes of Goldman Sachs to revise their NFP forecasts for tomorrow (higher from 175K to 200K as the case may be).

So much for the ADP's revised "credibility" which is nothing but a dummy attempt by the BLS to double up the "validity" of its own data by getting a comparable data point the day prior, by a company that effectively merely piggybacks on BLS "source data." How to check? Tomorrow's NFP print will be within 15-20K of today's ADP seasonally adjusted 215K print.

At least the NFP provides what its unadjusted source data is: ADP refuses to even do that.

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youngman's picture

They want to get closer to the BLS numbers....but be a day ahead to make their name...

Stuck on Zero's picture

Evenas they are all drifting away from the Gallup numbers.  Of course, Gallup polls real people and the BLS and ADP uses computer models which are so much more infallible.




lemonobrien's picture

gov tells them what to print cause deys american.

philipat's picture

Fortunately we still have U-6.

Dr. Engali's picture

With all the technology we have you would think we could track some real time data...or at least come up with a better lie.

Shell Game's picture

Not when 'truth is treason in this Empire of Lies'...

NotApplicable's picture

Better lie? As long as this one is working, they're not going to waste the next one prematurely.

Remember, these people are experts at economizing...

the truth.

Tsar Pointless's picture

MOTHER BATES: It's lies! All lies!

youngman's picture

My palms are all hairy.......

Cdad's picture

Fascism is so damn exhausting...

IvyMike's picture

Fascism does have the "merit" of saving European civilization, at least according to one economist.

"It cannot be denied that Fascism and similar movements aimed at the establishment of dictatorships are full of the best intentions and that their intervention has for the moment saved European civilization. The merit that Fascism has thereby won for itself will live on eternally in history."

~Ludwig von Mises

me·rit (n.) 1. Superior quality or worth; excellence 2. Demonstrated ability or achievement.

Shell Game's picture

No f'n kidding..   I think most all of us learned at a young age how difficult and exhausting it was to spin a lie.  And how, eventually, it became obvious that much pain (paddling) was had and how much energy was wasted in the process.  I think fascism is in need of some Pain..

unplugged's picture

All this propaganda is getting really boring.

BlueCollaredOne's picture

You're just not drinking enough.

ekm's picture

I've been telling you guys, over and over and over and over. This is an INSECT TRAP. Hence financial industry has a in effect become a PUBLIC UNION.

A Public union is:

- useless

- extractive


Everything at this point is up to Obama as in 2008 everything was up to Bush.

Same as for Benghazi, everybody passed the buck to Obama to make a decision and he fucked up.

Right now the decision to continue the lunacy or crap the market has been deferred squarely on................Obama. Same as for Benghazi.

May God help us.

Glass Seagull's picture

We throw autoregressive dice.

q99x2's picture

the NWO side of things seems to be running on skeleton crews. CNBC seems to have at least a part time web developer on board. I see a few articles posted each day over there. ADP seems to have outsourced  a lot of their work to the BLS. Before long there won't be anyone to have a revolution with.

toomanyfakeconservatives's picture

The NWO is being hedged against, defunded, squeezed and set up to fail. The NWO and the lackey media must go and will go the way of the dinosaur.

economessed's picture

Econometrics is my thing.  ARIMA models are like crutches -- smooth the data out, and regress the error terms so the model at least gets the trend right.  They are self-corrective, making their predictive powers dubious.  Great tools for curve fitters who can't produce any sustained causal variables, or who try to explain complex systems with a couple of strings of misbehaved data.

Conclusion:  ADP's data isn't explaining the macroeconomic outcomes, and their only recourse is to model it through curve-fitting techniques.  Meh.

adr's picture

But when you overlay the chart curve of the unmanipulated data with the X-12 ARIMA bullshit, you get a chasm visible from the Andromeda galaxy.

I wouldn't call that a crutch.

YouAreBliss's picture

Love that KT-88 - a 1950s GEC would have been better though.

orangegeek's picture

Nothing is left untouched by government hands.


Yesterday's jump in SP500 on government raising taxes is the most bizarre move to date.  When markets get this emotional/irrational, watch out below.




Q4 results to help to confirm these numbers - which they probably won't.

Mercury's picture

Seasonally, hedonically and fiat adjusted, there just isn’t much there there anymore.

adr's picture

haaa ha ha.

You know we could just report the real numbers as they come in.What is really wrong with that? The adjustments have been wrong every month for the past five years.

Seasonal adjustments are now 100% propaganda to reinforce the Emperor Lord King Exalted All Powerful One Gigidy Digity Got Love Fo Yo Mama Obama.

firstdivision's picture

ADP is actually worse than NAR. 

apberusdisvet's picture

Any info from the (A)bsolutely (D)umb (P)rognosticators should be just as suspect as anything else that is used to instill confidence or hopium among the sheeple. Btw; the explanation they give is so obtuse as to make your head swim.

alfred b.'s picture


    Velcome to the USSA komrads...yo'all fall in line now, yah hear!



azzhatter's picture

Can't we all just say "Everything's fixed"

dcb's picture

I don't know if the method or sources are valid, but the faster we bring down unemployment the faster we end QE zirp (while I've no doubt Bernanke or whom ever will just change the critieria then again)

the second thing is that the rating agencies have been a bit under the government thumb, so I'm sure there is hidden pressure to come up with data the gov't likes because they can alter securities rules ti make the rating agencies less profitable

kchrisc's picture

Winston Smith works at ADP now.

wonderatitall's picture

grit those teeth, zandi. obama goes in dry! a little weed and some taxpayer money and you to can be a butt buddy of obama, right ezra.

Westcoastliberal's picture

The truth is, ANY government numbers or those reported by large corporations or banksters are highly suspect and not to be trusted.  We're so far down the rabbit hole now, any attempt to actually "fix" the mess we're in would result in mass prosecutions of TPTB (or suicides because the truth is too awful).

It's garbage in-garbage out.