Financial Market Commentary

Markets were elated over the higher-than-expected gain in Total Nonfarm Payrolls in January. That large gain, of course, was only discernible after a “seasonal adjustment,” made at the discretion of government statisticians. Below I’ve charted Total Nonfarm Payrolls since 2005 without any seasonal adjustments (NSA):

The graph shows that there are predictable declines in total employment in July and January, due to abrupt changes in summer and holiday jobs. These abrupt changes are easier to see if we look at the change in Nonfarm Payrolls NSA:

Minus the discretionary “seasonal adjustment,” the economy actually shed 2.7 million jobs in January. The seasonally-adjusted (SA) Nonfarm Payrolls number does not measure the actual number of jobs created or destroyed. The SA number instead measures what total employment WOULD BE if it weren’t July or January. And it’s important to note that much of the seasonal adjustment process occurs based on the discretion of government statisticians. Who couldn’t possibly be under pressure to produce evidence of a stronger economy during a presidential election year. No way.

To help reconcile the large difference between the seasonally-adjusted and non-adjusted data, I also graphed Total Tax Collections and Income Tax Collections by the States:

If the economy were adding jobs and more people were working again . . . shouldn’t the states be collecting MORE total taxes, especially income taxes? Maybe we should start seasonally adjusting more data, so these annoying divergences — that make absolutely no sense — would be harder to document. Further notice in the above graph how Total State Income Taxes are falling faster than Total Taxes, which suggests FEWER people are working and paying Income Taxes, not more.

“Ladies and gentlemen, boys and girls — in the blue corner, we have the non-seasonally adjusted data. In the red corner, we have the discretion of government statisticians. The referee has explained the rules to each fighter.”

But my question is: Does the “audience” that trades and invests based on the discretion of government statisticians understand the rules? Do they even pay attention to the rules? And if they could only choose one, would they choose a.) accurate data or b.) the increasingly-addictive rush of dopamine associated with another triple-digit gain in the Dow?