Select Page

Can a Seasonal Adjustment to Lost Jobs Justify a Tighter Fed?



By Alan Reynolds, Cato Institute


“Booming Job Gains Could Fuel Fed Debate Over Whether More Is Needed to Corral Inflation,” screams a Wall Street Journal headline.

“Fresh signs of a hot U.S. labor market leave the Federal Reserve on course to raise interest rates by a quarter percentage point at its meeting next month and to signal another increase is likely after that,” reads the story. “Employers added a robust 517,000 jobs last month and … Average hourly earnings grew 4.4% in January from a year earlier, down from a revised 4.8% in December… Fed officials could conclude that… still‐​tight labor markets will boost workers’ bargaining power and their overall incomes, providing fuel for inflation to reaccelerate after slowing. That could lead officials to conclude they will have to do more to slow the economy by raising rates higher or holding them higher for longer—or both.”

All that excitement over a routine “seasonal adjustment” to make a couple of million lost jobs look like half a million new hires? Really?


Seasonal adjustment turns job loss into gain


The graph shows the number of private employees always falls quite dramatically every January, after holiday shopping, and 2023 was certainly no exception. This January’s job loss was slightly less than January 2007 or January 2020 (if such pre‐​recession data provide any comfort), so it looks like a big gain in such relative terms. The fallacy that “employers added a robust 517,000 jobs last month” confounded a statistician’s seasonal adjustment with an actual increase in the number of people collecting paychecks. There were nearly 2.2 million fewer people on private payrolls in January than December, and that did not “boost their overall incomes.”

Note that I use only private employment and earnings because it seems unlikely the Fed thinks it can control federal, state, and local government hiring and pay policy. Investment in housing, durable goods and business investment are sensitive to interest rates, but not politicians.

Hourly earnings in the private sector slowed to a 3.6% annual rate (0.3% this January), down from 4.8% in December, 5.2% in November and 8% in January of 2022. There is no shred of evidence of accelerating private wage gains, without which Fed officials’ banal “tight labor market” mantra is pointless.

Unless Fed officials believe they must try to shove down the Bureau of Labor Statistics’ seasonal adjustments with higher interest rates, it would be even more foolish than usual for them to treat these preliminary estimates of “seasonally adjusted” job gains as a fearsome omen that falling inflation is about to flare up again in a mysterious burst of spontaneous combustion.


Economist Alan Reynolds is a senior fellow at the Cato Institute and former vice president of the First National Bank of Chicago.