How Does the Unadjusted Unemployment Rate Compare to the Seasonally Adjusted Unemployment Rate?
The U.S. Bureau of Labor Statistics (BLS) published the U.S. Unemployment Data and promotes the Seasonally Adjusted U-3 Unemployment Rate as the primary measure of unemployment. But often when we look at the adjusted Unemployment rate it is moving in the opposite direction as the unadjusted Unemployment rate. And it doesn’t make sense. How can the Unadjusted unemployment rate be up and the adjusted rate be down? Or vice-versa?
Personally, I prefer my numbers straight. I don’t like that fact that someone in the government has “adjusted” them.
But according to the BLS:Seasonal adjustment is a statistical technique which eliminates the influences of weather, holidays, the opening and closing of schools, and other recurring seasonal events from economic time series. This permits easier observation and analysis of cyclical, trend, and other nonseasonal movements in the data. By eliminating seasonal fluctuations, the series becomes smoother and it is easier to compare data from month to month.
So in theory removing these fluctuations makes the data easier to compare from month to month and in practice it looks somewhat like a moving average smoothing out the peaks and valleys. So let’s look at how seasonally adjusted data compares to unadjusted unemployment data on a chart. As we can see from the chart below, the Seasonally adjusted numbers are smoother, showing the big trend a bit easier by eliminating a lot of the month-to-month “noise” where the original data bounced up and down around the adjusted numbers quite a bit. But because of the bouncing around, quite often the adjusted numbers could be moving in one direction while the unadjusted numbers move in the opposite direction. For instance in the period from 2003 through 2007 the seasonally adjusted unemployment rate was generally moving down but half the time the unadjusted numbers were moving up although the overall trend was down.
As we can see from the chart snippet below, often in November the unadjusted unemployment rate (blue line) is below the adjusted unemployment rate. But then by January unemployment jumps up above the seasonally adjusted rate. And if we think about it, it makes sense because extra workers are hired in November to get ready for the Christmas rush and so unemployment goes down and they are laid-off in January so the unadjusted unemployment rate goes up. But knowing that this happens every year the adjusted rate takes that into consideration and gives you a line somewhere in the middle. Interestingly, the same thing tends to happen again somewhere around June as well.
How Does U-3 Compare to U-6?
The U-3 Unemployment rate takes a fairly narrow view of who qualifies as “Unemployed” and excludes people who are considered “discouraged workers” and have given up looking for work (which are included in the U-6 unemployment rate). To see a comparison chart of the U-6 unemployment rate compared the U-3 rate see U-3 vs. U-6 Unemployment Comparison.