X-12 Arima Is Back: A Look At ADP's "Seasonal Adjustment" Protocol Tyler Durden 01/03/2013
"You know it: our old friend the BLS's very own Arima X-12 makes a very unexpected appearance. Why a private entity, the ADP, which has no links to the Bureau of Labor Statistics is using the same adjustment process used by the government agency, to divine its final, seasonally adjusted number, especially when it refuses to disclose its unadjusted data, is anyone's guess. Or is the ADP number now nothing but a reinforcing surrogate to double the credibility of the BLS data, whose credibility in recent months has also hit unseen lows? It certainly would explain the recent revision in ADP methodology, and the fact that administration sycophant, Moody's Mark Zandi is now the "brains" behind this meaningless number (not to mention the resulting humiliation for all those who had though that ADP data, like that from the NAR, is even remotely credible).
From the ADP's "Methodology-Full Detail"
Seasonal adjustment
Employment growth in each of the 90 size class/industry cells is seasonally adjusted using the Census Bureau’s X-12 ARIMA method, with the default ARIMA outlier criterion modified to resemble the corresponding CES criterion. Deseasonalized trends for the industrial cells are recalculated with each new month of data.
Each observation in an industrial cell is then compared with the trend value, and outlier observations are removed. Matched employment growth for the 90 size classes is calculated for the second time using the cleaned data. Each cell employment growth is seasonally adjusted again using the same X-12 ARIMA method.
An additional adjustment is made for months in which there are five weeks between survey reference weeks. This is done by regressing the growth rate in each cell on a dummy variable, which if significant, is used to eliminate the long-month effect.
The short version = we are constantly changing the goal posts and removing inconvenient data.
This is reminiscent of how the BLS uses 'chained dollars' and 'intervention analysis' to 'enhance' the CPI.
Note: Many statisticians consider the raw data collected by the BLS to be the most accurate of the various economic indicators.
The main tools used to 'enhance' the raw data are seasonal adjustment and the determination of which bucket each unit of data is assigned to (e.g. are you part of the civilian labor force, are you working part time but need full time).
It reminds me of that mancala game where the players go round-n-round the board moving the marbles from cup to cup.
Orthodoxy SUCKS.
"I do not feel obliged to believe that the same God who has endowed us with senses, reason, and intellect has intended us to forgo their use and by some other means to give us knowledge which we can attain by them."- Galileo Galilei
"Or is the ADP number now nothing but a reinforcing surrogate to double the credibility of the BLS data, whose credibility in recent months has also hit unseen lows?"
That's been my thought for the last couple of years.