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New seasonal adjustment method could lower totals



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American Airlines is sending 25,000 Worker Adjustment and Retraining Notification (WARN) letters on July 15 ahead of potential layoffs or furloughs.

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The Labor Department is switching to a new method to seasonally adjust its weekly jobless claims figures that could result in a sharply lower claims totals.

Initial claims – a rough measure of layoffs –that have hovered around 1 million each of the past few weeks could come in closer to about 800,000 for the week ending Aug. 29.

As a result, USA Today has decided to use non-seasonally adjusted claims totals so we can better compare the most recent numbers with previous figures.

Economics reporter Paul Davidson breaks it down.

How does a seasonally adjusted figure differ from one that’s not seasonally adjusted?

The government routinely seasonally adjusts its economic numbers to account for events that occur at certain times every year and are likely to inflate or deflate the data. For example, many employees who work in schools are let go in June. Without any seasonal adjustment, that would result in a big spike in weekly initial jobless claims every June.

By seasonally adjusting the data to account for such spikes, the government can provide a better reading of what’s really happening in the economy, putting aside the seasonal surges. That means that if initial claims rise much less than expected when schools close in late June, Labor may record that as a decline on a seasonally adjusted basis.

By contrast, non-seasonally adjusted numbers represent the actual tally of claims filed. For the week ending Aug. 22, the seasonally adjusted initial unemployment claims totaled 1 million, compared to 822,000 on a non-seasonally adjusted basis.

Why is the Labor Department changing its seasonal adjustment method?

During the pandemic, jobless claims spiked to the highest levels on record as states shut down nonessential businesses and millions of Americans lost their jobs. Applying the previous seasonal adjustment method to outsized claims totals led to proportionately large seasonal adjustments that overstated the number of claims filed in some periods.

The new method involves using a seasonal adjustment that’s more stable because it applies a number rather than a percentage to the actual claims total, J.P. Morgan economist Daniel Silver wrote in a note to clients.

With the pandemic causing a big jump in claims, the new method should “more accurately track seasonal fluctuations in the series and have smaller revisions,” Labor says.

Will the new method apply only to initial claims?

No. Labor will also use the approach to calculate continuing jobless claims, which represent all Americans currently receiving benefits. It thus reflects all those who are still unemployed as well as workers who have been rehired or landed new jobs.

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Does this change come as a surprise?

No. In its news release on jobless claims last week, Labor announced that it would adopt the new approach starting with claims filed the week ending Aug. 29.

How much of a difference could the new method make?

Silver figures that if the technique had been used in March when claims peaked at 6.9 million, the seasonally adjusted total instead would have been about 6.1 million. And if the approach were used in August, when claims hovered at about 1 million, they instead would have totaled about 850,000.    

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How will the new seasonally adjusted claims totals compare to the non-seasonally adjusted figures?

The new approach could put the seasonally adjusted data more in line with the non-seasonally adjusted numbers, Silver says.

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