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Additive vs Multiplicative Method Change

BLS Explanation

Beginning with the Unemployment Insurance (UI) Weekly Claims News Release issued Thursday, September 3, 2020, the methodology used to seasonally adjust the national initial claims and continued claims reflects additive factors as opposed to multiplicative factors. 

Seasonal adjustment factors can be either multiplicative or additive. A multiplicative seasonal effect is assumed to be proportional to the level of the series. A sudden large increase in the level of the series will be accompanied by a proportionally large seasonal effect. In contrast, an additive seasonal effect is assumed to be unaffected by the level of the series. In times of relative economic stability, the multiplicative option is generally preferred over the additive option. However, in the presence of a large level shift in a time series, multiplicative seasonal adjustment factors can result in systematic over- or under-adjustment of the series; in such cases, additive seasonal adjustment factors are preferred since they tend to more accurately track seasonal fluctuations in the series and have smaller revisions.

Prior to September 2020, the seasonally adjusted unemployment insurance claims series used multiplicative seasonal adjustment factors. Starting in September Bureau of Labor Statistics staff, who provide the seasonal adjustment factors, specified these series as additive. In accordance with the usual practice, the seasonal adjustment models and factors will be reviewed at the beginning of each calendar year, when prior years of seasonally adjusted estimates will be subject to revision.

If the methodology was incorrect it should be been revised back to the beginning so the series is intact. 

Instead, we have what appears to be an improvement but really isn't. 

This mess will be reviewed in January of 2021 and revised away some number of unknown months after that.

Initial Claims Dip Below 1,000,000 (Well Not Really)

Initial state Claims Sep 3 Report

The US Department of Labor reports In the week ending August 29, the advance figure for seasonally adjusted initial claims was 881,000, a decrease of 130,000 from the previous week's revised level. The previous week's level was revised up by 5,000 from 1,006,000 to 1,011,000. The 4-week moving average was 991,750, a decrease of 77,500 from the previous week's revised average. The previous week's average was revised up by 1,250 from 1,068,000 to 1,069,250. 

Continued Claims in 2020

Continued State Unemployment Claims Sep 3 Report

Continued claims, not initial claims show the real problem.

Continued state unemployment claims showed a bit of further improvement due to the methodology change noted above. 

Even with the change, progress is agonizingly slow with continued claims at a "reported" 13,254,000, an alleged decrease of 1,238,000 from the previous week's revised level. 

The BLS reference week for the next jobs report is the week that contains the 13th of the month. That's the week that determines the official unemployment rate.

At the current rate of improvement claims will be above 10 million for months.

The reference week pertains to the BLS jobs report on the first Friday of every month. The data suggest a slight improvement in the official unemployment rate, not to be confused with the real unemployment rate.

Perspective on Continued Claims

Only a long-term picture describes the unprecedented nature of what's happening.

Four Continued Claim Factors

  1. Continued claims lag initial claims by a week.
  2. People can find a job and drop off the unemployment rolls.
  3. People can expire their benefits and drop off the rolls.
  4. People can retire and drop off the rolls.

Note: My Initial Claims and Continued Claims charts are Seasonally-Adjusted. The following PUA and Totals are NOT Seasonally-Adjusted.

Primary PUA Claims

Primary PUA Claims in 2020 Sep 3 Report

Primary PUA covers those who are not eligible to make state claims. People working part-time can also claim PUA.

The report lags initial claims by 2 weeks and continued claims by 1 week.

Primary PUA claims hover near the 11 million mark.

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PUA claims are not seasonally adjusted.

Thus, the jump from 10,972,770 to 13,570,327 is as reported.

All Continued Claims

All Continued Claims in 2020 Sep 3 Report

 The total number of people claiming benefits in all programs for the week ending August 15 was 29,224,546, an increase of 2,195,835 from the previous week.  

As with PUA Claims, ALL Continued Claims are also not seasonally-adjusted.

The jump is as reported.

No Double Counting Just Misleading

All Continued Claims is sum of all the various programs.

There is no double-counting as widely reported.

One either applies at the state level or the Federal Level, not both. And one must first apply at the state level.

There are currently 29,224,546 people collecting pandemic assistance. Confusion stems from the fact that not all of those people are unemployed.

PUA allows part-time workers to apply. They will not show up in the monthly jobs report as unemployed.

There are also some collecting PUA who are genuinely unemployed who simply do not qualify for any state programs.

Number of Unemployed

The number of unemployed is somewhere between 15 million (continued claims) and 29 million (all claims).

My guess is around 20,000,000 but the BLS will report far less due to extremely strict counting guidelines plus admitted errors.

Expired Benefits

It's important to note that those on PUA who are not working part-time have no money coming in.

Individuals must first apply at the state level. If not covered then they can apply for PUA. Persons who qualify at the state level get state benefits plus PUA. This is part of the double-counting confusion.

Those on PUA but not a state program have no money coming in unless they are working on the side.

Due to Congressional bickering the last PUA check is for the week ending July 25. 

Trump authorized another $400 but with states having to supply $100, so really the authorization is $300.

Authorization is one thing sending out checks is another. This will be the fifth missed check for those receiving PUA.

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Point number 4 is particularly ominous.