When Economic Adjustments Can Mislead You

On today’s show we are taking a look at two different measurements of the exact same thing. Imagine for a moment that you wanted to cut a piece of wood. You take out your trusty tape measure and measure the distance you think you need. But then along comes an economist who says, “Oh no. You’re not going to use that simple tape measure are you? That will only give you a nominal measurement. There are a bunch of adjustments to be made in order to get the real measurement.”

This is a joke of course, but often jokes mirror reality. 

The Case-Shiller real estate market index reports both nominal (non-seasonally adjusted) and seasonally adjusted data. 

So when is it appropriate to use the seasonally adjusted number? 

Seasonally Adjusted data is best for analyzing short-term trends, like month-over-month changes, because it removes the noise of seasonality.

Non Seasonally Adjusted data is better for year-over-year comparisons, since seasonal patterns occur in the same month each year.

For example, I would personally compare June of 2025 against June of 2024. That’s a valid comparison for the same point in the seasonal cycle on a year over year basis. For that measurement I would not use seasonally adjusted data. If I wanted to compare June to January which are at different points in the annual cycle, I might use the seasonally adjusted data. But because the seasonal variations are so large I personally would not even perform that comparison even with the seasonal adjustments. I don’t know what conclusions I would draw from the data. 

I personally don’t like to mess around with adjustments at all. I would prefer to compare this January against January the year before, and then February against the same month the year before and so on. That way there is no seasonal adjustment required for the exact same period one year earlier. It’s a like for like comparison. 

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