How Does the Unadjusted Unemployment Rate Compare to the Seasonally Adjusted Unemployment Rate?
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 Bureau of Labor Statistics which is the source for the unemployment data,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.
Click Chart for Larger Image
A specific example occurs in January 2013 when the red adjusted number is up slightly, but the Blue unadjusted number turns up sharply and crosses through the red. Another example is October 2012 when the adjusted number went up (7.8% to 7.9%) and the unadjusted number went down (7.6% to 7.5%).
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.