Like drinking from a fire hydrant, investors have trouble consuming economic data. There is just so much of it. If economists are good for nothing else, they do produce a flood of data. While there is honest disagreement about which economic report is the most important, it is clear that the investment markets are most quickly affected by the monthly Jobs Report from the Bureau of Labor Statistics.
That report gives us the percentage and number of workers unemployed, the percentage and number of workers under-employed, the number of people joining/leaving the workforce, etc. The one number that gets the most attention from Wall Street is jobs created by the private sector. That report is issued on the first Friday of each month . . . tomorrow.
Last month, the market was stunned when it learned only 120 thousand jobs were created in March. A survey of economists expects the number tomorrow to be about 170 thousand. If tomorrow’s report is below 150 thousand, I expect it will be a cloudy day on Wall Street. If it is approaches 200 thousand, it will be a sunny day on Wall Street.
It is an unhappy coincidence that the report is issued on Fridays, which also happens to be the most volatile day of the trading week. Adding to the drama, every Wednesday before the Jobs Report, the huge payroll-processing company of ADP issues their estimate. This week, they estimated private payrolls increased only 119 thousand, well below economists’ expectation and a 7-month low . . . a strong negative hint of Friday’s report.
Every Thursday, the Department of Labor releases their new claims for unemployment benefits. This morning, it was announced that new claims dropped 27 thousand, to the lowest level in the 12-months . . . a positive hint of Friday’s report.
As an investment manager, I care a great deal about Friday’s Jobs Report. As an economist, I frankly don’t care at all. First, it is almost always adjusted the following month, as the seasonal adjustments seem to change every season. Second, it is backward-looking and tells me little about the future. The trend is much more meaningful. Third, it may be measuring the wrong things anyway. There is a closer relationship between job turnover and the future, because workers don’t change jobs unless they are very confident of getting another job quickly.
So, no matter what the number is tomorrow — maintain an existential sense of humor, wear a wry smile, and try to gauge how much the market over-reacts, which is what the market does best.