For me, there is a disconnect in the economic numbers of late. Car sales, the ISMs, NFP (and others #s) are not pointing to a recession. The September numbers look more like an economy growing at 3% than one struggling at 1%. So I’m confused. I think the markets are as well.



All the numbers that we get that shape the collective assessment of, “How are we doing?” are seasonally adjusted to smooth out results. On balance, I think the numbers are reasonably close to reality. But they are also flawed.



One area that I have observed over many years that creates “noise” in the numbers is the Five Friday Month effect. Every year there are two months that have five Fridays. For those who are getting paychecks weekly there is an “extra” paycheck. For those who get a paycheck every other week there is also two months where there are three paychecks. Weekly earners get 20% more take home in those months. Those on a bi-weekly schedule get a 33% pop in income. It is important to note that not all five Friday months result in an extra check for bi-weekly workers. (August of 2011 had 5 Fridays, but only two bi-weekly checks). The months that have the 5 Friday phenomenon change every year (It’s never a February).



Look at September 2010 vs 2011. In 2011 there were 5 Fridays. It was also a month where bi-weekly earners had three checks.

Some of this should be adjusted in the numbers that have been released. I think that there is still a distortion in the YoY numbers that is giving a misread on the economy. We shall see.



If you believe there is something to this statistical fluke then consider the comparison of October 2010 and 2011. In 2010 October was a five Friday month and it was also a month that had three checks for the bi-weekly earners. Just the opposite occurs in 2011. My conclusion? October is going to disappoint.

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