WASHINGTON (Reuters) – The U.S. Labor Department said on Thursday it was changing the methodology used to address seasonal fluctuations in its weekly unemployment claims data, which economists complained was less reliable because of the economic upheaval caused by COVID-19.
The department said in a statement that starting next Thursday, it would use additive factors to seasonally adjust the initial claims and continued claims data instead of multiplicative factors.
“A multiplicative seasonal effect is assumed to be
proportional to the level of the series. A sudden large increase in the level of the series will be accompanied by a proportionally large seasonal effect,” the department said.
“In contrast, an additive seasonal effect is assumed to be unaffected by the level of the series.”
The coronavirus crisis has caused an unprecedented decline in economic activity, with nearly 7 million people filing new claims for unemployment benefits at one point. The Labor Department said in the presence of a large shift in the claims series, the multiplicative seasonal adjustment factors could result in systematic over-or under-adjustment of the data.
“In such cases, additive seasonal adjustment factors are preferred since they tend to more accurately track seasonal
fluctuations in the series and have smaller revisions,” it said.
Economists welcomed the change in methodology.
“The change should address the issues that have plagued seasonally adjustments during this pandemic,” said Heidi Shierholz, director of policy at the Economic Policy Institute in Washington.