Season’s Greetings for the unemployment figures
Authors: Andrew Sissons
12 December 2012
It’s Christmas time – and it turns out that the season has a big effect on today’s labour market statistics, but probably not in the way you expect.
Today’s headline number shows unemployment falling by 82,000 in 3 months, which looks like great news. But it isn’t all it seems. In fact, if you take away the seasonal adjustment factor that the ONS applies to its statistics, unemployment is much higher now than it was earlier this year.
The chart below shows this trend. The red line shows the headline unemployment number, which is seasonally adjusted, and has been heading down all year. But the blue line, which shows unemployment without any seasonal adjustment, tells a different story. It shows unemployment much higher now than it was in May.
So how can this be? Well, the ONS applies a seasonal adjustment to its numbers, to take account of how the job market fluctuates throughout the year. The chart below, which looks a bit like a heart rate monitor, shows how this works. At times when the labour market tends to be stronger (roughly, between November and May each year), the ONS adds up to 60,000 to the raw unemployment number. And during times of weakness (roughly June to October), the ONS subtracts up to 80,000, making unemployment appear much lower than it is.
And the latest labour market statistics cover the three months from August to October, a period where the seasonal adjustment lowers the headline unemployment figure significantly.
(Note: this chart shows the difference between seasonally adjusted and non-seasonally adjusted unemployment figures. A positive figure can be interpreted as how much the ONS adds to the raw unemployment number)
Now, none of this is to suggest that seasonal adjustment is a bad thing, or that the ONS is massaging the figures. Seasonal adjustment is an important tool to remove noise from statistics, and to prevent us misinterpreting figures.
But 2012 has been an unusual year in seasonal terms, particularly due to the Olympics and the extra Bank Holiday in June. If, as we would expect, the Olympics caused a one-off improvement in the job market over the summer, the seasonal adjustment may have become distorted. If any extra jobs from the Olympics don’t end up being permanent, or if the labour market weakens in the run up to Christmas, we may see the headline unemployment numbers jump quite dramatically in the New Year.
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