Figuring out what data supports the argument, and what is just window-dressing

That is the question in my head when I read an article like USA Today's "Jobless Claims Fall, Suggests Strong Hiring". (link)

The headline makes the connection between newly-released jobless claims data and the conclusion of "strong hiring". But it turns out the new data is merely window-dressing, and the conclusion is based on longer-term trends.

Here is the new data, as reported by the USA Today reporter:

• applications for unemployment benefits fell 4,000 last week to a seasonally adjusted 294,000.
• The four-week average, a less volatile measure, slipped 250 to 290,500

Without even looking up the source, one should immediately see that a change of 250 on the four-week moving average is just statistical noise. The 4000 change for the last week is also statistically insignificant because the weekly series is highly volatile. The proper conclusion about this release of data is that the employment situation was stable from last week to the week before.

Now, one could go backwards in time and make an argument for "stronger hiring". This is exactly what the journalist did, by citing "total job growth in 2014 at just shy of 3 million, the best performance since 1999" and "[The 4-week moving] average [of jobless claims] has plunged 16 percent in the past 12 months, as averages have stayed at historically low sub-300,000 levels since September".

Take a look at this chart of the 4-week average in the last five years. The trend has been the same for five years (just draw a straight line through the series) and there is nothing at the right tail of the time series to indicate that the latest data release changed anything:

 

I'm also amazed that at this point, a journalist can write an article about employment without once mentioning the workforce participation rate. (Anyone who is excluded from the work force is not eligible to be "unemployed". The workforce participation rate has gone down without recovering.)

Notice that this time series was essentially flat until the recession.

I have a whole chapter on employment statistics in Numbersense (link).

 

 

 

Comments

[Ken]

In Australia, every month economists predict the expected unemployment mainly by extending the smoothed trend line, and then there are a lot of articles making claims about the reasons for the deviation from the expected, which is only statistical noise. The Australian Bureau of Statistics even plots the trend and seasonally adjusted together for the previous 12 months so that the noise is clearly visible.

[junkcharts]

Ken: The biggest problem as usual lies with how statistics are consumed. These metrics were never intended as objects to bet money on. Traders turn them into a horse race; why must others follow suit? Sampling errors are published in the U.S. too but routinely ignored.