By Joseph Plocek

WASHINGTON (MNI) – The recent uptick in economic indicators is
unmistakable, but it is just possible that mild winter weather is
skewing higher seasonally adjusted information that normally looks for a
lull in the winter as snow and ice cover much of the country.

Consider the recent string of better-than-expected indicators:

– January payrolls surged 243,000

– Unemployment claims hit a four-year low of 348,000 in the Feb. 11
week

– January housing starts rose 1.5% to 699,000;

– February Philadelphia (10.2) and Empire (19.53) manufacturing
indicators up

– January industrial production unchanged but prior months revised
higher

– January retail sales gained 0.4%

Then consider this:

– Unadjusted January payrolls were down 2.7 million

– Unadjusted unemployment claims were recently much higher at
362,000

– Unadjusted January housing starts were down 8.2% and the series
is up just 1% over the year

– January industrial production was up 3.4% over the year, below
the +3.9% annualized Q4 pace

– Unadjusted January retail sales were down 21.4% and the growth
rate over the prior January is just 5.6% against a 2.9% CPI for far more
modest real growth.

Such is the effect of strong seasonal adjustment, which tries to
make up for regular occurrences, in this case a draw-back in economic
activity in January after the holidays and in anticipation of more
severe weather. Seasonals generally are based on events that occurred in
the last five years, with special weight given to recent years.

The National Oceanic and Atmospheric Administration reported
January 2012 was the fourth warmest such month on record for the lower
48 states.

“During January, warmer-than-average conditions enveloped most of
the contiguous United States, with widespread below-average
precipitation. The overall weather pattern for the month was reflected
in the lack of snow for much of the Northern Plains, Midwest, and
Northeast,” NOAA said.

Compare that to last year’s snowstorms, for example the one from
Jan. 31 to Feb. 2, 2011, also called the 2011 “Groundhog Day Blizzard,”
when activity was paralyzed.

It is reasonable, therefore, to conclude at least some of the
strength in recent labor market, housing and industrial data stems from
too strong adjustment.

About the best we can say is stay tuned: February and March data
will sort out if the good weather simply boosted the data, but impatient
traders will have to wait months for a proper answer to perhaps this
most pressing question that will determine the path of interest rates.

–Joe Plocek, jplocek@marketnews.com, Tel. 202-371-2121

** Market News International Washington Bureau: (202)371-2121 **

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