the August Employment Situation
Last Friday was the first Friday of the month. So the Bureau of Labor Statistics of the Labor Department issued its usual monthly Employment Situation report, an hour before stock trading on Wall Street opened. After an initial plunge on the data, stocks rallied. They stayed up by +.25% – +.50% until just before the close. Traders then exhibited their typical nervousness about holding positions over the weekend and brought the market back down,closing just above breakeven.
The ES figures?
They were relatively weak. …a gain of +169,000 new jobs for the month. Not bad, but below the Wall Street consensus of +180,000 positions. In addition, previously reported estimates for June and July were revised down by a total of -74,000 jobs. Hence the initial negative financial markets reaction.
should we take these numbers seriously?
Yes, they have a stock market reality (shot-term traders transact on them), but:
1. Economists’ predictions for the month had been edging up on positive anecdotal data. Like houses selling in a few days at above the asking prices, or cars flying off dealers’ lots, with shortages developing at Subaru and Ford. Maybe the economists went a little overboard.
2. The raw data are massaged (seasonally adjusted) before they’re published. Over the past couple of years, the monthly adjustments for August have been wacky–and revised up a lot in subsequent months.
3. The margin of error for the ES is +/- 100,000 jobs. Why so big? Every month, 3 million – 4 million Americans leave their jobs. Every month, 3 million – 4 million take new jobs. The ES jobs estimate is the difference between these two gigantic numbers. On that scale, +/- 11,000 jobs is a rounding error. The fine print at the bottom of each monthly report says we should take seriously only figures nine times that size.
Nevertheless, traders are fixated on the monthly ES reports and react strongly to them, no matter what their actual statistical significance.
the market’s thinking this time?
It’s that this ostensibly bad news is actually good. The argument is that the Fed’s intended “taper,” that is, the amount by which it will slow it injection of emergency supplies of new money into the economy, will be less than originally anticipated. The Fed will not want to take the risk that, for once, the August ES are accurate and the economy is a bit weaker than anecdotal evidence suggests.
Yes, given the high level of chronic unemployment, the monthly ES reports take on a significance they wouldn’t ordinarily have. After all, I’m writing about them every month and I never paid much attention before the Great Recession.
On the other hand, I routinely ask people wherever I go how their business is going. Throughout the northeast US, even in the most unlikely places, I’ve been getting surprisingly positive answers recently. I find it very hard to believe that the US economy is beginning to weaken.
Also, for my stock market strategy–which is to reestablish exposure to the EU and the Pacific and to find beneficiaries of increased spending by ordinary Americans–small monthly fluctuations in the ES numbers don’t really matter that much any more.