Recessions and the Seasona

Adjustment of Industrial Produc
The Problem

• X12 appears appears to allow swings related related to

recessions to affect its estimated seasofactors to some extent.

– X12 decomposes a series into trend plus b

cycle, seasonal, and irregular components

moving averages to d i er ve the t d ren plus c

component do not always conform as wel

might like to specific recession patterns.

• For example, consider the industrial

production index for raw steel.

Past efforts to avoid recession‐relate

distortions to seasonal seasonal factors factors

• Since the 1920s, seasonal adjustment o

used a ratio‐to‐moving‐average method
Past efforts to avoid recession‐relate

distortions to seasonal factors (contin

• Because the 1957‐58 recession was rec

as distorting distorting seasonal seasonal factors factors during the 

on the 1959 revision to IP, seasonal fact

were estimated estimated using data only through through 
Past efforts to avoid recession‐relate

distortions to seasonal factors (contin

• During the work on the 1976 revision to 

sharp p dro in IP in late 1974 and its sub

recovery was recognized as producingdistortions in seasonal factors so data othrough the end of 1974 was fed to X11
Past efforts to avoid recession‐relate

distortions to seasonal seasonal factors factors (contin

(contin

• In the process of the 1976‐78 revision to IP, data for 

recession that ended in early 1975 continued to dis

estimated seasonal factors, so the indexes for 1967 

were linked to the indexes for 1976 to 1978 and X11 

on these modified indexes.

• A second procedure was also tested in the 1976‐78 

to IP—replacing replacing the 1974‐75 values for the index w

typical values based on the preceding and subseque

The results of the two methods were similar.
Past efforts to avoid recession‐relate

distortions to seasonal seasonal factors factors (contin

(contin

• The 1985 revision to IP incorporated the Box‐

intervention intervention technique technique in calculating calculating seasona

seasona

This procedure used an ARIMA model and ad

outliers outliers to replace replace recession recession‐affected affected values w

more normal values prior to running X11.
2010 Revision to IP

• Two approaches approaches to correcting correcting for recession recession‐r

r

distortions to the seasonal factors:

– “Robust detrending” of the data as a preliminary 

before feeding to X12.

– Intervention Procedure: Using a REGARIMA mode

additive additive outliers outliers for the recession recession period and the

that period’s data with values that reflect the mo

seasonal pattern for that period.
Robust Detrending

• We often pre‐adjust a series using a “ro

detrending” procedure designed by Bill

Cleveland, who was the Board’s season

adjustment guru before he retired.

• By robust, we mean that it uses a mix o

moving medians along with moving ave

in order to keep extreme values from af

the trend.
Robust Detrending (continu

• The impact of the robust detrending is 

dramatic, dramatic, but it tends to reduce the effe

business cycles on the computed seaso

factors.

• The following chart illustrates the proce

for raw steel.



Intervention Procedure

• Allowing for interventions using additive outlie

ramps, and level shifts in the context of an ARI

model was one of the innovations in X12 relati

X11.

• Compared with the robust‐detrending approac

intervention procedure seems to more effectiv

reduce the recession recession‐related related distortions distortions in the 

seasonal factors.

• On the other hand, specifying the periods to tr

recession recession‐related related outliers outliers requires requires more attent

attent

individual series.

• The following charts show the effects for raw s


Conclusions

• Seasonal Seasonal factors factors derived derived from X11‐like

methods have long been perceived as n

being insulated insulated from recession recession‐related related

distortions.

• Pre‐adjustments adjustments to the data to modera

modera

business cycle before running X11 mitig

some of the distortions distortions.