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Citi Discovers The Culprit For Poor Jobs Data...

Tyler Durden's picture




 

Earlier this year, the BEA officially jumped the shark when, much to the delight of Steve Liesman, the San Francisco Fed (Janet Yellen’s former stomping ground), and anyone who enjoys a good goalseeked statistical revision, the US decided to double adjust its GDP figures.


The second revision was justified by reference to a bit of academic nonsense called “residual seasonality.” For those who might of missed this landmark moment in stupidity, here’s a brief recap: 

It's official: after seeing it work so well for years in China, the US Department of Commerce's Bureau of Economic Statistics has officially replaced all of its excel models with just one function. The following:


 

As Steve Liemsan hinted a few days ago, in what we thought was a very belated April fools joke, th eBEA has finally thrown in the towel on weak seasonally-adjusted US GDP data, and as a result has decided to officially proceed with a second seasonal adjustment: one which will take all the bad data, and replaced it with nice and sparkly, if totally fake and goalseeked, GDP numbers.

 

As Bloomberg reports, "the way some parts of U.S. gross domestic product are calculated are about to change in the wake of the debate over persistently depressed first-quarter growth. In a blog post published Friday, the Bureau of Economic Analysis listed a series of alterations it will make in seasonally adjusting data used to calculate economic growth. The changes will be implemented with the release of the initial second-quarter GDP estimate on July 30, the BEA said."

 

In other words, as of July 30, the Q1 GDP which will have seen its final print at -1% or worse, will be revised to roughly +1.8%, just to give the Fed the "credibility" to proceed with a September rate hike.

Well don't look now, but Citi (whose economists have been on roll lately when it comes to churning out riotous research calling for helicopter cash to save the world) is out with a new note that suggests the reason the Fed may have missed its window to hike is because they were relying on faulty jobs data which allegedly suffers from ... you guessed it... "serious residual seasonality." Here are some notable excerpts from the note:

Several times during this expansion, the Fed has made important policy decisions in the month of September. The history of payroll revisions for August and September has shown that some of those decisions might have been based on false signals, which could have biased policy toward accommodation.

 

We have found serious residual seasonality in payroll reports for the period from August through October. Weak August and September readings typically lead substantially stronger October reports, including sharp upward revisions to August and September data. This pattern has given rise to shifting market (and Fed) views of the labor market – from weakness to strength – each fall.

 

We have seen that the seasonal weakness in August payroll gains has supported accommodative policy decisions during this expansion. For instance, shortly after the extremely weak August 2011 payroll report, the Fed announced the plan to ease through Operation Twist. In 2012, after another soft August figure, the Fed announced QE3. In September 2013, the Fed unexpectedly delayed tapering QE3.

 

In each case, subsequent data showed that the August jobs data had been misleadingly weak – the labor market had been improving all along. 

See how that works? Where the data dependent Fed screwed up was when they decided to depend on the data which, contray to what it seemed to show, was actually "improving all along." This is the same logic Japanese PM Shinzo Abe employed overnight when he argued that Japan "has shrugged off the deflationary mindset,” even though the latest data shows that the economy just slid back into deflation. 

So what, you might ask, should the Fed have done if it wanted to avoid making a policy mistake by missing its window to hike? Here's Citi with the answer: 

If history is any guide, upcoming employment reports may reestablish that the labor market continues to improve rapidly. Although we expect another modest headline print of 180K on Friday , the low reading reflects the seasonal anomaly that September jobs prints tend to be among the lowest of the year. We see this reading as a lower bound of the true underlying path of employment.

 

Importantly, we would not be surprised if the September report included notable upward revisions to earlier months, based on the pattern of the past four years. 

Apparently, the Fed should just assume that the data is actually better than it is by factoring in a possible upward revision in the future, an assumption which would then allow the FOMC to proceed with rate hikes. Of course that raises the obvious question of what happens if the data is actually as bad as it looks and the Fed, on Citi's advice, ends up hiking into poor jobs data. This also begs the question of whether the Fed should take a similar approach with all the other data it looks at. That is, should the FOMC just assume that a sub-zero Q1 GDP print will eventually be double adjusted to show that the economy actually expanded? And if so, and if that gives Yellen the greenlight to hike, at what point can the data which telegraphs the economic malaise that results from that hike be trusted as a signal the Fed needs to reverse itself? Or should the Fed just assume that all the data is wrong, that everything is actually fine, and that inflation isn't actually running below target?

Who knows, and perhaps it's best to just close with the simplest assessment of Citi's latest pontificating: the bank has now blamed poor jobs data on... summer.


 

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Wed, 09/30/2015 - 12:39 | 6611568 Mark Mywords
Mark Mywords's picture

Time to just sniff glue and watch pro wrestling.

Wed, 09/30/2015 - 12:43 | 6611588 Amish FinEng
Amish FinEng's picture

A trump voter ^ .

Wed, 09/30/2015 - 12:50 | 6611616 Mark Mywords
Mark Mywords's picture

Bzzzt! Wrong-o. Try again, Boo-Boo.

I doubt a Trump voter could even read and comprehend this post.

Wed, 09/30/2015 - 13:07 | 6611718 El Vaquero
El Vaquero's picture

"Seasonal adjustment," when used honestly is simply another way for saying "data smoothing."  Here is a fun fact about data smoothing:  Your brain is actually very good at it.  If you have a function plotted on a graph that would benefit from smoothing for whatever reason, you can draw a line on that graph, using nothing but your eye, your hand and a pencil, and you will get a very good smoothing function.  The problem lies in the most recent few data points.  If you are smoothing time series data, you ALWAYS have to make some assumptions about the most recent few data points, whether you are using some sort of math function, or whether you are using just your eyes.  The closer your mathematical smoothing function gets to what your eye and your hand would produce, the more true this is.  If your assumptions were off, just wait until a few more data points are out, and it'll be obvious. 

Wed, 09/30/2015 - 14:39 | 6612281 Save_America1st
Save_America1st's picture

ummm....remember that one time when Fonzie jumped that shark?   that was awesome...

https://www.youtube.com/watch?v=WvGopsM1G9g

 

Wed, 09/30/2015 - 12:49 | 6611620 WhyDoesItHurtWh...
WhyDoesItHurtWhen iPee's picture

I dropped all my  “residual seasonality” in one bowel movement this morning.

Wed, 09/30/2015 - 13:27 | 6611832 Amish FinEng
Amish FinEng's picture

Did you give Trump his morning shower?

Wed, 09/30/2015 - 13:11 | 6611739 DetectiveStern
DetectiveStern's picture

AND HIS NAME IS JOHN CENA

Wed, 09/30/2015 - 12:43 | 6611585 buzzsaw99
buzzsaw99's picture

...should the FOMC just assume that a sub-zero Q1 GDP print will eventually be double adjusted to show that the economy actually expanded? And if so, and if that gives Yellen the greenlight to hike, at what point can the data which telegraphs the economic malaise that results from that hike be trusted as a signal the Fed needs to reverse itself? Or should the Fed just assume that all the data is wrong, that everything is actually fine, and that inflation isn't actually running below target?

STOP THAT OR YOU'LL GO CROSS EYED

Wed, 09/30/2015 - 12:44 | 6611596 KnuckleDragger-X
KnuckleDragger-X's picture

Or grow hair on your palms.....

Wed, 09/30/2015 - 12:48 | 6611618 jldpc
jldpc's picture

WTF: Why not? Seasonal adjustments my ass - to smooth out what? Reality! Why not just publish the damn actual sampling numbers, and let the WS bozos argue it out. Think of the comedy - kinda like what late night television used to be. Or better run a lotto. We can bet on it - kinda like off-track betting. Then anyone can bea tout. Oh wait. That is the world we live in.

Wed, 09/30/2015 - 12:50 | 6611626 Squid Viscous
Squid Viscous's picture

haven't heard much from that Tobias Levkovich, wasn't he uber bullish at 2100, what a schmutz

Wed, 09/30/2015 - 12:51 | 6611632 buzzsaw99
buzzsaw99's picture

+1 for schmutz

Wed, 09/30/2015 - 13:19 | 6611710 Arnold
Arnold's picture

If you publish the raw numbers, how the hell are you going to know what to think?

 

I do remember as scandal lite some years ago, that some states were slow in reporting and buggered the numbers,  the agency had to fill in to cover the gap and readjust later.

Wed, 09/30/2015 - 12:52 | 6611634 franzpick
franzpick's picture

(Equities are tanking, giving it all back.  Is there new news?)

http://www.investing.com/indices/us-30-futures-advanced-chart

Wed, 09/30/2015 - 13:28 | 6611836 Amish FinEng
Amish FinEng's picture

Ah. You're here for news?

Wed, 09/30/2015 - 12:53 | 6611642 LostWages
LostWages's picture

the bank has now blamed poor jobs data on... summer.

 

Fucking summer!   Don't worry, winter is coming very soon....right Kondratiff?

Wed, 09/30/2015 - 14:15 | 6612125 Sparehead
Sparehead's picture

Yep, and if this were a just world it would be the keynesian socialists that'd get the Kondratieff treatment this time around.

Wed, 09/30/2015 - 12:54 | 6611648 orangegeek
orangegeek's picture

here it comes...here it comes.....it's coming....it's coming...

 

FUCK YOU YELLEN!!!!!

 

ahhhhhhhhhhh, that's better.

Wed, 09/30/2015 - 12:55 | 6611652 WillyGroper
WillyGroper's picture

OT: Too truthy for USSA?

These billboards should heat things up a bit.

Courtesy SGT.

 

I just now became aware of this story.  Entire family destroyed & terrorized.

Kim Dortch | My Family's Experience With The Police State

This is what's in store for us.

Wed, 09/30/2015 - 12:56 | 6611656 847328_3527
847328_3527's picture

The data is miserable -- retail, commodities, etc -- because gas prices are just too low; no one wants to go out and drive at these low gas prices thus no shopping either.

 

It's very logical.

 

 

Wed, 09/30/2015 - 12:57 | 6611659 Sudden Debt
Sudden Debt's picture

AMERICA NEED TO BE MORE INNOVATIVE!!

LOOK TO BELGIUM FOR THE ANSWER!!!

We've did a recalculation of the porn sector in Belgium and we've figured out is was a few billion more then before!!

Therefore we can inflate our gdp even more and we can take on more debt because we're clearly good for it!!!

INOVATE OR DIE BITCHES!!

Wed, 09/30/2015 - 13:02 | 6611690 Manipulism
Manipulism's picture

Does that include fucking children?

That your speciality, isnt it?

Wed, 09/30/2015 - 13:10 | 6611731 Mark Mywords
Mark Mywords's picture

I think you mean Catholics.

Wed, 09/30/2015 - 12:57 | 6611661 PoasterToaster
PoasterToaster's picture

In Soviet America, shark jump you!

Wed, 09/30/2015 - 12:58 | 6611666 Arnold
Arnold's picture

I'm glad that mystery is solved.

 

Those two X-File agents are going to ask for more assets, and Rand Paul is going to go to bat for them.

Wed, 09/30/2015 - 12:59 | 6611677 Thisisbullishright
Thisisbullishright's picture

There are the unknown unknowns, and then there are the known unknowns and then....

Oh just forget it!!

 

 

Wed, 09/30/2015 - 13:02 | 6611693 wmbz
wmbz's picture

"the bank has now blamed poor jobs data on... summer"

Well who the hell wants to work in the summer? It's going to get HOT!

That's time for vactions, spending more time with family, shopping, seeing the USSA in a Chevrolet...ETC.

Then comes fall, time to get ready for the holidays, and holiday travels.

Next is winter when it turns cold, and who wants to work when it's cold and snowy out?

So perhaps springtime is the only goood time to work?



Wed, 09/30/2015 - 13:25 | 6611725 cowdiddly
cowdiddly's picture

Are you kidding me,Work in spring? NYET

Spring is when the fish start biting and you can use your ETB to buy $13.99 pd Gulf Coast Shrimp for bait.

I wish this was a joke, but I sadly seen this with my own eyes last year

Wed, 09/30/2015 - 13:42 | 6611752 Arthur Schopenhauer
Arthur Schopenhauer's picture

That sounds like nice work if you can get it.

Well lets see:

If you made $50 an hour and worked 8 hours x 5 days = 40 hours you'd make $2,000 a week times 52 weeks = $104,000 a year.

But what if you only worked in the spring for 3 months (13 weeks)?

You could work 24 hours a day, with time and half for the additional 16 hours a day, then:

You'd make $75 an hour for 16 hours x 5 days = 80 more hours a week. You'd make an additional $6,000 a week.

$2,000 + $6,000 = $8,000 a week x 13 weeks = $104,000 a year.

There ya go (and don't anybody start complicating things with claims you can't stay awake for 13 weeks straight).

Wed, 09/30/2015 - 13:12 | 6611746 XRAYD
XRAYD's picture

Don't worry, it will be "hunting" season soon!

Wed, 09/30/2015 - 13:13 | 6611748 Glass Seagull
Glass Seagull's picture

 

 

The seasonality of residuals in job loss matters not.

It all boils down to how many law students have failed the bar, and are now working at a bar...part-time of course.

Wed, 09/30/2015 - 13:13 | 6611751 NYPoke
NYPoke's picture

Shades of the Clinton Era, when people out of work for 6 months, drop off the Unemployment Stats.

Wed, 09/30/2015 - 13:32 | 6611861 Arnold
Arnold's picture

Shades of 95 million out of bennies shortly.

The fucken job numbers barely keep up with population growth.

 

http://time.com/381/why-todays-miserable-job-numbers-are-probably-wrong/

 

Oldie from Time Magazine.

Wed, 09/30/2015 - 13:31 | 6611851 Yen Cross
Yen Cross's picture

    The problem with fudged statistics is they always make you end up looking like a retarded, lying fucking asshole, when the wheels fall off your cart.

   The more money printing that takes place, the more expensive living costs for just about everyone become. It's an endless feedback loop, with no outcome but disaster.

 I'd like to know what the ECB, BoJ, PBoC, or Fed. for that matter, are going to monetize the printing with, being that there's already a shortage of quality collateral? I won't even go into the ridiculous unidirectional flow issues they've already created in just about every asset class.

 Populations in developed countries are already dropping largely to to lack of jobs and high living costs. Why do you think the U.S. is letting so much more cheap fodder cross it's borders?

Wed, 09/30/2015 - 13:51 | 6611961 Squids_In
Squids_In's picture

The Taylor rule puts Fed Funds at 2% and falling! These stupid asses missed the tighening cue completely - should ahve been 2 years ago. Hello!! Is there anybody home? Now it's too late. The stocks are too high and the corporates are too in debt to cope with a normal business cycle slowdown. Instead the whole house of cards is likley to come down. Thank you, Bernake, your experimental monetary policy has been a disaster.  

Wed, 09/30/2015 - 13:54 | 6611985 Herdee
Herdee's picture

And here I thought it was just the Cold and Snow?What'll happen during climate change when the MidWest turns into a desert?

Wed, 09/30/2015 - 14:10 | 6612086 Mr. Bones
Mr. Bones's picture

I want to believe.

So hike rates based on this new and better data.  We're all waiting.

Wed, 09/30/2015 - 15:21 | 6612462 Dig Deeper1
Dig Deeper1's picture

Call Al Gore.  Climate change is causng the BlS to understate jobs.  We are all in peril!  Cue the running in circles, screaming, and waving of hands.

Wed, 09/30/2015 - 16:41 | 6612883 honestann
honestann's picture

Yup... just make it up.

As I always say, their technique is 100% rationalization.

Wed, 09/30/2015 - 17:24 | 6613088 johnjkiii
johnjkiii's picture

Liars have to have good memories and Official liars have to be able to differentiate between their lies and the real data. They're losing track so what follows will be funny. Sadly not humerously so.

Thu, 10/01/2015 - 11:50 | 6616074 DestinyL
DestinyL's picture

I guess even turning to best resume writing help will not in this situation. We simply need a better job rating. According to the latest news, October josb will be on the rise. It is related to seasonal job hiring. Sure, the rating will go up for a few months, but you can imagine what is going to happen in January. All these people will be jobless again. And January is the month where we read about finance cuts that lead to firing thousands of people. The economy is in the situation where I do not think that jobs will be added any time soon.

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