Seasonal adjustment and the business cycle in unemployment

Several recent studies show that seasonal variation and cyclical variation in unemployment are correlated. A common finding is that seasonality tends to differ across the business cycle stages of recessions and expansions. Si nce seasonal adjustment methods assume that the two sources of variation ca n somehow be separated, the present study examines the impact of seasonal a djustment on the analysis of cyclical patterns. Seasonally adjusted quarter ly unemployment data for five G-7 countries are modeled by a Smooth Transit ion Autoregression (STAR), whereas the corresponding unadjusted data are mo deled by a so-called Seasonal STAR (SEASTAR). A comparison of the implied e stimated peaks and troughs shows that there is substantial agreement on the business cycle chronologies, albeit that for seasonally adjusted data, rec essionary periods tend to last longer.