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Matthew C Klein

Has the Fed Been Fooled by Phony Jobs Numbers?

The seasonal adjustments performed by the Bureau of Labor Statistics and the Bureau of Economic Analysis are distorting our perceptions of economic growth.

James Bullard, the president of the Federal Reserve Bank of St. Louis, is on record as saying the Fed was prepared to start cutting its monthly bond purchases up until "weaker data came in" earlier this month. In all likelihood, he was looking at the monthly jobs report, which showed disappointing growth during the summer. Yet a new paper presented by Johns Hopkins economist Jonathan Wright at the Brookings Institution's Panel of Economic Activity indicates that the Fed may have been misled by meaningless data. The evidence suggests that employment growth was just as anemic in July, when the Bureau of Labor Statistics reported 104,000 new jobs, as it was in February, when the BLS reported that 332,000 jobs were added.

The problem is due to some peculiarities in the formula for seasonal adjustments. Weather, the school calendar and holidays all affect how many people are working in any given month, creating a lot of volatility in the raw jobs numbers. For example, the BLS reported that 1.2 million jobs were lost in July and 378,000 were added in August. Thanks to seasonal adjustments, however, most people think that 104,000 jobs were added in July and 169,000 were added in August. The truth is somewhere in between.