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With another Friday employment report looming this week, we are reminded of the market's very poor reaction after the big miss in March. That report showed just 120,000 jobs gained vs. expectations of 205,000. Many investors, including myself, thought that weather may be partly to blame. Namely, it looked like the relatively warm winter may have kept people working in certain seasonal jobs who normally would have been laid off when the weather turned colder. Thus, the relatively strong January and February reports may have overstated the real strength in the labor market due to a seasonal adjustment. I've spent some time looking through the details of the employment report to see if I could isolate where the weather might have made an impact, and if so, how large that impact might have been.

Seasonal adjustments are the way statisticians try to normalize data that have known calendar trends. For example, retailers tend to hire lots of temporary workers just before Christmas and then lay them all off in January. Indeed, every January the U.S. economy loses around 2.7 million jobs. If we didn't account for that seasonal pattern, it would be extremely difficult to parse the underlying employment trend from the noise of seasonal shifts. While the actual process of making seasonal adjustments is complicated, the principal is quite simple. A base-case job shift for a given month is established, e.g., 2.7 million for January. Then that figure is either added to or subtracted from the actual figure. So if -2.7 million is the "base case" and only lose 2.5 million jobs are lost, the seasonally adjusted number will be +200,000....808 more words left in this article. To read them, just click below and try Real Money FREE for 14 days.