Back to School / Back to Work

Will the start of the school year set monetary policy?

Photo: Maria Bavuso. Source: Morguefile

When I was growing up, schools opened after Labor Day. My brothers and I loved those last, lazy days of August—playing pickup football, or fishing, or just hanging out. And later, when I worked during the summer, I enjoyed earning one more week of extra spending money. I’m pretty sure our teachers appreciated that time as well.

But as the school year has expanded and schools have built more snow days and storm days and training days into their calendars, the start of school has crept earlier and earlier. Labor Day is just an early holiday. Some school districts even begin classes in July.

Sample of 2015-16 School Start Dates. Source: CNN

What does this have to do with monetary policy? Officials at our ultra-transparent Federal Reserve have repeatedly stated that they will follow the data as they determine interest rates. On Friday we’ll get one more look at the US labor market. But that view will be distorted: some teachers are already back at work; some schools won’t open for a couple weeks.

Lately, August has seen the highest revision rate to the Labor Department’s employer survey, adding almost 100 thousand jobs to the initial estimate.

Source: Unicredit

The BLS is certainly aware of this, and they’re always updating seasonal adjustment factors. But there’s no way they can compensate for the variations in over 14 thousand different school districts. The most sensible approach over the years is for analysts to average August and September. But we can’t do that until after the Fed’s fateful September meeting.

So don’t be surprised if Friday’s number comes out on the soft side. The back-to-school season has created statistical anomalies in the jobs report for as long as I’ve been watching the tape—almost 30 years. Hopefully, our Ph.D.-filled central bank board won’t see the data and overreact. But I won’t be shocked if the market does.

Douglas R. Tengdin, CFA

Chief Investment Officer

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