Explaining Yesterday's Seasonally Adjusted Nonfarm Payroll "Beat"

Tyler Durden's picture

Since there still is confusion regarding yesterday's whopping "surge" in non-farm payrolls, which represented a 243K jump in the Establishment survey (of which 490K was temp jobs, same as in the Household Survey where temp jobs soared by a record 699K), yet only to arrive at an employment number last seen ten years ago, when the US population was about 30 million lower (think about that: 30 million increase in population and no change in the total employed), here is the final explanation of what happened yesterday.

As everyone knows by now, January is when the BLS imposes its annual seasonal adjustment revision (more on that in a second) for the previous January-December period. What this manifests itself most directly in, is the divergence between the Nonadjusted January number of the establishment survey of any given year and the Unadjusted number. And while the January adjustment is always substantial, it is the fact that the so-called beat was entirely based on assumptions that makes yesterday's NFP number so meaningless, and hardly the basis to assume that the US economy has taken off.

The chart below shows the adjusted and unadjusted employment survey data for total Nonfarm Employees. The annual January overadjustment is more than evident. Just as evident are the subsequent under-adjustments as seasonal data is lowered to account for volatility in the NSA data. What is very notable is that in January, absent BLS smoothing calculation, which are nowhere in the labor force, but solely in the mind of a few BLS employees, the real economy lost 2,689,000 jobs, while net of the adjustment, it actually gained 243,000 jobs: a delta of 2,932,000 jobs based solely on statistical assumptions in an excel spreadsheet!

So how does this data fit in specifically in the context of the just passed NFP whopper of a number? Simple. The chart below shows the January seasonal adjustment for the past 4 years, since 2009. The number of jobs added for "seasonal" purposes to the NFP number were as follows: 2009 - 2,006,000; 2010 - 1,970,000; 2011 - 2,129,000, and the all important 2012: 2,146,000. Once again, this is the number added to the NFP unrevised baseline to get a "final" number which is then blasted to the media. The chart below shows the historical January adjustment, to the NFP data, as well as the 2012 reported adjustment, and also what the statistical adjustment would be for the NFP number to have the NFP number come in line with expectations of a 140,000 beat.

Here is the kicker: the market mood yesterday would have been far more somber if instead of a seasonal fudge-factored statistical addition of 2,146,000 jobs, the BLS had decided on a number that is merely the simple average of the statistical adjustment of the past 3 years, which comes down to 2,035,000. In fact, had the BLS used this seasonal adjustment, the final NFP headline number (SA) would have been +132,000, or a miss of expectations of 8,000 (the Seasonal Adjustment number to get to consensus January expectations would have to be +2,043,000 to the NFP number). In other words, the difference between a + and - 2% move in the stock market is based on less than a 5% variation to the entire January seasonal adjustment, as had the BLS add just the simple average, the BLS report would have been a disappointing miss, and the market would have likely dropped (although with 5 momos in charge of the entire market, the thesis would have likely promptly shifted to "more QE coming" so who really knows). And now you know how the BLS' seasonal adjustment, which as Charles Biderman pointed out yesterday is guarded as secretly as Coke's recipe, defined the tone and the mood of the market for at least one month.

Finally, as to some newsletter and namesdropping blogs allegation that the Labor Force did not, in fact, increase by 1.2 million in January, we have one simple question: just how does one "refute" a statement with an assumption? Because last we checked, the BLS did not provide a smoothing breakdown of how it applied its seasonal adjustment for the "population control effects" which saw the population increase by 1.7 million in January and those not in the labor force rose by 1.2 million. Quite the contrary , what the BLS did provide is Table C: "December 2011-January 2012 changes in selected labor force measures, with adjustments for population control effects" which does show how on an apples to apples basis the adjustment factors did in fact impact the two key components in determining the unemployment rate: the amount of Americans employed, and those not in the labor force.

And while one can try to say it is inconceivable to say that the US population jumped by 1.7 million in one month, we reply that this is coming from the BLS whose admission of the "population control effect" adjustment merely confirms that it has been misrepresenting the actual labor force participation rate for at least a year. In other words, while one may pander to semantics, and believe that a data series is not a data series because of one's mastery of sophistry and assumptions, this is totally irrelevant: the end result is that in January, those "not in the labor force" did in fact rise by 1.2 million (whether compared to December or to 2011 - please, go ahead and check as many times as needed), and the labor force participation rate dropped to a new 30 year low of 63.7%, a number which incidentally only has to drop by 5% more percent for the BLS to report zero, or even a negative, unemployment rate

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Cand-Hamz-Bitchez's picture

1000 up-arrows for the first paragraph of your post.  Seriously.

And then you get into the racist, tin foil hat shit.  I think I'm gonna take away your up arrows.

Conrad Murray's picture

Well, allow me to apologize for antagonizing your idiocy. Sometimes I happen to forget there are millions of sheep who are conditioned to cry RAYCISS! every time they hear or see the word black/white/brown.

There is nothing tin foil or racist in my post. It's an analysis of government data from Pew.

Since you've decided to take the most boneheaded approach possible(slinging slanderous shit around with no backing in reality), and may have thus cast an unfavorable shadow onto the point I was making, I will excerpt a few lines for you and any other baboons incapable of clicking a link and reading.

"the typical black household had just $5,677 in wealth (assets minus debts) in 2009; the typical Hispanic household had $6,325 in wealth; and the typical white household had $113,149"

If you managed to read that hate-filled bit without having your eyeballs burst into flames of sin, maybe you would be kind enough to tell me, in non-racist words of course(we don't want to offend the delicate PC sensibilities of the emasculated population), what that means for investments, given due consideration of the aforementioned demographic shift.

Cand-Hamz-Bitchez's picture

It means that the people who spend, instead of hoard money, will become the majority in the population.  They will purchase goods instead of hoarding money, and there will be money to invest in the economy again.

Of course, I'm sure that many of the Blacks/Hispanics will just spend their money on 40s of Malt Liquor instead of investing.  Right, Conrad?

I totally understand what you're saying now.  Because there will be more black and brown people, innovation and investment will stop in America!  I totally understand how that's not racist... pardon me.


Conrad Murray's picture

A household with $6k is never going to invest on the scale of a household with $110K. Will things even out in the long run? Will the children of today, growing up in a world where criminals and traitors get bailouts and bribes on the backs of their parents, trust the white man's casino? Who knows.

America isn't going to stop being the land of innovation and investment because of brown and black people. Look at Africa and Mexico for proof. America will stop(has stopped) being the land of innovation and investment because of Statism.

Point of clarification: Blacks spend all of their money on malt liquor, but Hispanics spend all of their money on weed.

Cand-Hamz-Bitchez's picture

So now the racism comes out.  Most of the people I know that spend their money on weed are white, personally.

If the household with 6k spends more, the people receiving the the money that they spend will invest.  They will need new facilities to support the people spending more money.  They will need new liquor stores and dispensaries, as a minimum, based on your logic.  Is that hard to understand?

Chump's picture

Well goodness, now "hoarding" is good...?  As long as it's the people selling random stuff that you want other people (who shouldn't be hoarding, apparently) to buy?  You can't even get simple-minded talking points right.

francis_sawyer's picture

Ahem Mr. oversized spam...

1. A household with 6k is most likely on food stamps

2. There's a good chance that it's a broken home & child support comes in somewhere

3. Highly likely that there has already been bankruptcy &/or court ordered wage garnishment (which means, nobody even has bank accounts, they go to a local check casher)

4. next to that check casher is a liquor store

5. The liquor store is owned by Koreans (and the booze is paid for in CASH)

6. Probably a few lottery tickets are sold as well

7. The Koreans hoarde the cash (& probably account for most transactions under the table)

I NOW RETURN YOU TO YOUR 'Sims' games & foto ops with the governor (who wonders why tax receipts are so low, except, of course, for the state lottery money that he/she is proud to say, YOU KNOW, is helping THE KIDS with better schools & education)...


Seer's picture

"It means that the people who spend, instead of hoard money"

Not to defend anyone, or any "behavior," but... how is money being hoarded?  I'm thinking that most of what you might be thinking is being hoarded is actually in circulation: retirement/pension money and such is managed and invested, which means that it is applied toward productive means (one could debate what "productive means" means, but I'll just leave it at this).

This is the "money is on the sidelines" argument/belief.  I'm pretty sure that such money isn't just sitting in vaults in people's homes (mansions or whatever) as such a description might suggest.  The closest that I figure this could mean is parking money in Treasuries or such; and this, I'd claim, is pretty much an all-but-forced directive by the Fed and the Treasury ("let us use it, else lose it").

slewie the pi-rat's picture


@ conrad

  • there is no retail guy.  check
  • boomers are a drag.  check
  • people of color do not have money to invest in markets so distorted they're meaningless.  check

i need to reload...

Everybodys All American's picture

That is the key question. First thing to understand they can't let rates rise very much at all because it will put the Fed underwater very quickly. Second, the amount of debt to auction is staggering. Failed auctions will raise alarm bells and Bernanke will do everything in his power to have auctions go off smooth. My thinking is that another debt downgrade is in the cards for the US and that will be the straw that breaks Bernanke's back.

fonzannoon's picture

Thanks for your thoughts. With the debt coming to auction being so staggering and the economy "gaining steam" you would think that would send rates up at an alarming pace...whcih would cause what? Ben to do QE3 with the markets soaring on recovery hopes? He would get mega backlash for that...and he can't just sit there and let it happen.....so.....market crash somehow? Causing people to flee to treasuries? Whats the card up his sleeve?

Seer's picture

"they can't let rates rise very much at all because it will put the Fed underwater very quickly."

This has been my take on things for quite a while.  I based it on the issue of ARM resets, that interest rates wouldn't be allowed to be increased until the wave of ARM resets passed.  I could hypothesize that banks were basically front-loaded with all this bailing as "compensation" for holding off raising interest rates (which would almost certainly inflict dire stress on the economy with massive loan defaults).  When viewed this way it would seem pretty clear that the banks are really running on borrowed time.

lolmao500's picture

Yesterday surge explained in 2 words : seasonal adjustment.

Reese Bobby's picture

Change You Can Believe In!

Dr. Engali's picture

The ball is your court Wesbury. Can you return it or are you going to ball up and cry?

Wm the Shrubber's picture

Good analysis, and doubtless correct.  Regardless, TPTB got the reaction they wanted.  This is long forgotten by Monday as we move on to the next distortion and misdirection.  Fundamentals and truth matter little in this environment, which is indicative not only of how fubar things are but also how far "they" are willing to go to perpetuate the fantasy.

fonzannoon's picture

@ Shrubber please see my question above as I wonder if they really got what they wanted or if they should have been careful what they asked for.

Wm the Shrubber's picture

Just a WAG:

1. Ramp markets on vapor volume;

2. Ringfence EZ banks with massive LOTR liquidity;

3. Allow Greece (likely Portugal) to default;

4. Markets correct from amped up levels, limiting damage;

5. Fed responds to financial scare with QE3/expansion of swap lines;

6. Market stabilize and resume ascent on wave of liquidity;

7. Obama gets reelected;

8. It all goes to hell in 2013 when the imbalances tip, inflation takes hold, and interest rates spike.

Stack Trace's picture

Funny. I was just predicting these events to my wife. :-)

Cand-Hamz-Bitchez's picture

Don't forget

9. Tank the price of silver!

10.  Buy all the silver!

11.  FEMA Concentration camps!

12.  ????????

13. Jesus riding his brontosaurus down to kill the non-believers!

onebir's picture

It doesn't really explain why the Jan seasonal adjustment is likely to be misleading: the seasonal adjustment will be *always* be very large when a month is atypical, and will almost always be changing a bit from year to year, because it's calculated using filtering techniques on a rolling window of prior year data, which is always changing.

So (even without manipulation, which is possible) it's no surprise that the seasonal factor can make the difference between a beat and a miss in January, when the seasonal factor is so big. That'll be true whenever the seasonality calls for a big seasonal factor...

However there's other reasons to think Jan NFPs were overly positive: since 2008 people will be much less willing to quit their jobs in Jan. (And quite likely this unwillingness has increased as the job market's deteriorated.) But the seasonal factors won't fully reflect these changes because they're based on at least 5 years of data.

Financial stress may also mean firms are less willing to keep people they plan to fire on the books until Jan, firing them in the precedding months instead. This too would imply the positive adjustment in Jan is too big (but also means some of the firings in the preceding months should have been offset by larger positive adjustments).

Seasonal adjustment is a nightmare whenever anything is changing...

Fred Hayek's picture

To add to your words, 2.7 million people lost their jobs in January according to the BLS report. After messing around with their adjustments, they say that we "gained" 243,000 jobs. The proportions alone, even if they were working with nothing but the purest intentions and best possible data and theories, make taking that 243,000 number seriously ridiculous. The actual losses were an order of magnitude greater than the represented gains. How incredibly confident in every aspect of your data and calculations would you have to be to say that that's truly the case?

ebworthen's picture

They've narrowed expectations while broadening the range of the fudge factor so that it becomes easy to lie.

Imagine forecasting weather with expectations that every day would be partly cloudy with precipitation and predicting temps in a 20 degree range.

"Wow!  It's a much better day than 52 and partly cloudy, it's 53 and partly sunny!  Picnic time folks!"

Of course, people can go outside and see for themselves; national propaganda is easier to foist upon people.

I have no idea if 56 degrees and partly cloudy is really what the weather is inside the Beltway in D.C.; but I'd wager my left testicle unemployment is higher than 8.3% there and in every part of the U.S.

Fred Hayek's picture

Actually, in the land of our government leviathan, unemployment is much lower than in the real world. Because unlike the real world there have effectively been no federal government layoffs in response to the great recession or in response to budget problems. All those executive assistant under secretaries for equal opportunity compliance in the Department of Homeland security and deputy vice chairmen for green energy utilization in the Department of Education are still pulling down their $137,000 a year like nothing has changed or ever has to. By far the single best housing market in the U.S., even better than N.Y., is D.C. Inside and next to the beltway they're still living like nothing's changed or ever has to. The reports they read about troubles in the rest of the country have as much reality to them as a news item about Biafra or Syria.

ThisIsBob's picture

Price had all day Friday to figure this out and didn't.  I wonder if it will have by Sunday night

LawsofPhysics's picture

I am no eCONomist, but I think I see a pattern emerging.

alexwest's picture

yes .. BLS totally fucked civilian population data series..
it just never ever happened before...

BASICALLY FUCKERS KEPT 'civilian population' as low as possible as long as it was possible..


dbTX's picture

Talk about some screw ball math !!

dwdollar's picture

The number of "people" attacking Zerohedge yesterday was amazing. If I were more conspiratorially, I would conclude it was a coordinated attack by entities with motives far greater than spreading "truth" on a blog or in a newsletter. However, I'm going with the premise that most people don't understand basic math anymore.

francis_sawyer's picture

I'm going with the premise that most people don't understand basic math anymore.

My effin MOTHER knew that the BLS numbers were bullshit (seriously ~ the topic came up inadvertently in a conversation I was having with her yesterday)...

She's fucking 78 years old... So the "academics" who don't understand basic math are "shills" for the Administration... Maybe they suck at math, but at least they know on which side their bread is buttered...

roadhazard's picture

When ZH goes from being ignored to being attacked you can be sure ZH is hitting all the right buttons.

Fred Hayek's picture

Gandhi said, "First they ignore you, then they laugh at you, then they fight you, then you win."

Are you saying they skipped the laughing part?

Cand-Hamz-Bitchez's picture

I can't possibly think how a site that attacks the news of every other site daily and consistently would make enemies on its own, without a larger conspiracy being involved.

SeattleBruce's picture

Did you read the word "IF" above, or is that not included in your accounting software programming expertise?!

Cult_of_Reason's picture

This is the best explanation of a "miracle beat" I have read so far (and I have read over 20 different explanations posted on the internet over the last 24 hours).

Yen Cross's picture

 The " Steve LIEsman" effect.  That was a Triple Lindy! Heck , one of my favorite posters barked at me.  Slewie,... Slewie,...Slewie,...?

slewie the pi-rat's picture


i think you triggered my maternal instincts, Y/C!

if you had any idea how many times i have fuked up my bankroll...

you be careful in those FX markets!


Ponzi Unit's picture

Biderman of Trim Tabs follows withholding tax payments. Sees nothing to support this. To the contrary.

russwinter's picture

Maybe the Gumnut has a different set of books, but if you look at Daily Treasury Statement withholding taxes YoY for FY 2012 to date(Oct-now)  compared to FY 2011, things look far from an employment boom, nao combinam.  It is 618.5 vs 616.7 YoY, corporate is 74.5 vs 68.9. Total is 726.6 vs 715.0 YoY. This is going to be way short of the revenue projection for FY 2012. 

Everybodys All American's picture

and in even far more simple terms the BLS is over estimating the number of new employees by at least 100K a month.

Atomizer's picture

Our Messiah has risen to higher levels no human has ever achieved….


Normally, I embed links to avoid favoritism amongst the crowd. Not today. All credit goes to The Peoples Cube.

Your Saturday comedy:

The Teachings of Jesus and Obama: A Reference Chart


g3h's picture

This argument is just weak.

First the first chart looks like the BLS did a decent job.  The SA line captures the trend  (non adjusted raw data) well.  If you look at the Jan data, you must admit that the employed population has had a "higher high" for the last 3 years.  So you just can't simply blame the BLS for making the adjustment.

As for the population drop, hey, that's the new census data.  When new population data are introduced, discontinuity is expected.  BLS may have lied.  But one can't simply fault it using its own data.

The true test comes in a month if the temp hiring can sustain.  If Dec sales (Nov retail sales was equally disappointed, just in case people had forgotten) and Q4 GDP, especially its inventory build up are any indication, the reality will set in.

Now the herd is highly likely to have been completely fooled by these upbeat data that prosperity is just weeks ahead and start to drain their savings and tap their rcedit cards again.  If that is the case, we may actually see a continuation.  If not, then payback time will come in a month.

SDRII's picture

restatement without pro forma is the whole point! let the lemmings debate it to death while the Obama shills gloat about their recovery with the bootlicker buysiders fulminating about the breadth of housing recovery. As to your "payback" month, you either missed the spirit of the post or for that matter the past 4 years. In 2009 the jobs card was simply a bridge too far and thus it was the combination of consumer confidence "better than expected" as it was walked higher in linear fashion coupled with short bans. It inst the seasonal adjustment it is the integrity of the numbers, last month, this month and next month.

GernB's picture

I disagree. People are being misled, but perhaps not in the way that it is being portrayed by either side.

The real stunning fact here is just how shaky the employment numbers are if a 5% change in the seasonal adjustment can mean the difference between "game changing" employment numbers, and a misrable miss. Nobody is making that clear ot the public. They just eat up the employment numbers like they mean something, but they clearly don't if the seasonal adjustment is many times the number of jobs that are created (or not created).

asteroids's picture

The BLS should be abolished and shamed. The easy way to do that is to simply point out the truth, repeatedly, until they go away.