Why Seasonal Adjustment Is Now Wrong ... New 1977 Problems To compound the problem, 1977 begain with extremely None of the past years has been like any other. Each has been a distinct series of aberrations and more ... Aberrations Should Not Recur In short, the cyclical patterns have not been recurring Thus, the current seasonal adjustment factors are calcul- By dictionary definition, an aberration is something spec- Yet, the Fed in May '77 repeated the same prior year's The seasonal adjustment factors for 1977 --- based upon the For the past 60 months (since November '73) 37 of the 15 16 The Pleasure Of Statistical Narcissism FUTURE BOOKLETS IN THIS SERIES Second Booklet.......will explain how and why the Fed's M1 first started to act up in 1973, during the year of the hedge buying as the recession was being set up, to end the year with the oil embargo. Third Booklet . . . . . . . .will cover the Fed's M1 for 1974. Fourth Booklet.......will cover the Fed's M1 for 1975. Fifth Booklet . .....will cover the Fed's M1 for 1976. Sixth Booklet .. ....will show why Congress better kill the seasonal adjustment during 1977 before the Fed commits the same error next year. Seventh Booklet......will demonstrate how the seasonal adjustment moves millions of people falsely in and out of jobs each month so that we have no accurate count of either the employed or the unemployed. _Other_booklets will demonstrate how the seasonal adjustment creates a Pause In The Economy each summer, because it adds on to economic growth in the first half of the year and subtracts from economic growth for the second half of the year. The seasonal adjustment makes the economy for the first half of a year look better than it is, and the second half worse than it is. 18 Book ! The Pleasure Of Statistical Narcissism Chapter III Fed's M1 - 1973 For our second booklet study of M1 as reported by the Federal Reserve Board on a seasonally adjusted basis, we will use 1973 as a base year. That was when oil prices were raised at the end of the year to aberrate all prices. The year 1973 was not a normal one in the historical sense, although by comparison with more recent years it is not quite as aberrational. 1973 OVERALL ECONOMY WAS STILL GOOD From the standpoint of straight government-compiled statistics, the 1973 economy was good, in fact, excellent by some observations. Most signals were go, auto sales were high and in the orthodox sense, 1973 looked like nothing more than a continuation of the super boom of the previous year. Beneath the surface though, it was not all that rosey. BUT THE BOOM WAS ARTIFICIAL The 1973 stage of the boom was artificial. It was caused by hedge buying of autos and other consumer Jurables by people desirous of beating rising prices, before they knew about oil price rises. And it was staged against a whopping three-tier drop in Sindlinger's measured consumer confidence triggered initially by the junking of the wage-price controls and the end of the Vietnam War in January and later in the year by the Arab oil embargo. 1973 was the last year for demand/pull inflation where money was in demand to fuel the hedge buying to beat the rising prices of inflation. Fed's M1 For 1973 RECESSION WAS FORECAST IN APRIL 1973 We projected at the time that the hedge buying borrowing of cars from future model years, and the decline in confidence would lead to a recession in 1974. This forecast was made by Sindlinger in April 1973 as the economy was booming, from demand/pull inflation. Nevertheless, the 1973 M1 figures, even on a seasonally adjusted basis, reflected the hefty input of funds by hedge buying consumers into the money supply. The money growth trends were quite typical, with a normal post-Christmas decline in January. The low point of the year was $254.3 billion in the week ended January, 31st, as originally reported. From then on, M1 continued in a general upward trend with the year's peak of $269 billion registered in the week ended December 26th, the final full week of 1973. (It is important to remember that seasonally adjusted figures are smoother than raw figures and generally show smaller week-to-week changes. Thus, such major bulges as those caused by Easter spending, vacations, and sending children back-to-school are already moderated.) As the weekly table next page shows, M1 as originally reported seasonally adjusted had a low to high gain during 1973 of $14.7 billion. During January 1974, as the 1973 seasonal adjustments were revised, the Fed said the low to high gain was $16.0 billion. Then, three years later in January 1976 all 1973 M1 figures were revised again, the Fed had the low to high gain back down to $14.6 billion, near the original figure. 19 |