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Thursday, March 1, 2012

Gallup’s Unadjusted Unemployment Data Suggest Increase in BLS Adjusted Figure

Gallup finds U.S. unemployment, as measured without seasonal adjustment, to be 9.1% in February, based on almost 30,000 interviews with a random sample of Americans. When Gallup applies the 0.5-percentage-point seasonal adjustment that the government applied to its unadjusted data for February last year, it produces an adjusted unemployment rate for February 2012 of 8.6% -- a substantial increase from the 8.3% adjusted rate the government reported for January.
The findings provide a preview of what Gallup will report in its monthly employment release next Thursday, March 8. Because Gallup’s data are collected continuously throughout the month, the data are available now, one week ahead of the BLS report scheduled for Friday, March 9.

Three key factors help determine the relationship between Gallup's measurement of the unemployment rate and the unemployment rate reported by the government. The first involves the relationship between Gallup’s and the government’s unadjusted survey results. Data from the past two years show that on an unadjusted basis, Gallup’s and the government's unemployment measurements track fairly closely in both direction and magnitude.
Gallup reported an unadjusted rate of 8.6% for January 2012 and the government reported an unadjusted rate of 8.8%. Gallup’s and the government's unadjusted results also tracked closely in January 2011 (9.9% versus 9.8%, respectively) and January 2010 (10.9% compared with 10.6%).

The results were similarly close in February 2010 (when Gallup found 10.6% versus the government’s 10.4%) but diverged significantly in February 2011, when Gallup reported an unadjusted rate of 10.3% and the government an unadjusted rate of 9.5%. That is, after the government re-based its unemployment data in January 2011, Gallup’s and the government's February results differed in both magnitude and direction.

Relating Gallup’s current findings to the likely unemployment rate the government will report for February depends on a number of somewhat complex key assumptions. Consider the following scenarios:
Based on its full-month measure, Gallup finds that the unadjusted unemployment rate increased by 0.5 points, to an average of 9.1% in February from 8.6% in January.
  • If we assume the government’s unadjusted unemployment rate experienced a similar 0.5-point increase, it would rise to 9.3% in February from January’s 8.8%. Applying the 0.5-point seasonal adjustment (based on the government’s February 2011 adjustment) to the February 2012 unadjusted rate (9.3%) would result in an increase in the U.S. seasonally adjusted unemployment rate to 8.8% in February 2012 from January’s 8.3%.
  • If we instead assume the government's unadjusted rate increased by 0.3 points in February to exactly match Gallup's measurement at 9.1%, this would produce an increase in the seasonally adjusted unemployment rate to 8.6% in February 2012 -- assuming the use of the February 2011 seasonal adjustment of 0.5 points.
Of course, there are lots of other possible assumptions. For example, the government’s unemployment estimate is based on a mid-month measurement. Gallup’s mid-month measurement for the unadjusted unemployment rate in January 2012 was 8.3% and it was 9.0% in mid-February. If we were to apply this mid-month increase of 0.7 points to the government’s unadjusted January rate of 8.8%, the resulting unadjusted 9.5% would lead to a 9.0% seasonally adjusted rate.

On the other hand, the government re-based its household survey once again in January 2012. If the government's unadjusted survey results are unchanged (8.8%) or go lower in February, the government's seasonally adjusted rate is likely to do the same.

A second factor to consider is the way the government seasonally adjusts its unadjusted unemployment rate for February. As noted previously, the government used a 0.5-point adjustment factor to seasonally adjust its results in February 2011. However, in 2010, it used a slightly different 0.6-point adjustment. Applying this larger seasonal adjustment to Gallup's full-month results would produce an 8.5% adjusted unemployment rate for February 2012 -- up from 8.3% in January.

A third factor that affects the unemployment rate might involve shifts taking place in the size of the workforce. If Americans seeking work get discouraged and drop out of the workforce in large numbers, it is likely to reduce the unemployment rate. This appears to have happened at various points in the past. Gallup's measurement of the participation rate -- the percentage of Americans in the workforce -- shows a decline to 67.6% in February from 68.2% in January. If the government shows a similar decline in the workforce, it is likely to lower the U.S. unemployment rate that the government reports and that may not be fully picked up by Gallup's data.

In sum, Gallup's Daily tracking of the U.S. unemployment rate -- which is not seasonally or otherwise adjusted -- shows an increase in February from January. This reflects a consistent measurement of the job-market reality that Gallup has measured since January 2010. It may be that various factors will lead the U.S. government on Friday, March 9, to release a different unemployment rate than that implied by Gallup’s results, but that report will not change the reality in the marketplace.

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