Does Payrolls Data Even Matter?

[skeemer]

Nonfarm Payrolls data is always a cause for heightened anticipation among both the media and the trading community, as the monthly number seems to be the most closely watched of the monthly economic indicators and based on that one would think it has great predictive powers for the markets. This is curious for several reasons:

1. Jobs data is a lagging economic indicator. To illustrate my point, ere is a chart of 15 years of Nonfarm payrolls data that captures the best 2 bull and bear markets :

I’ve circled in red the 2 times the SPX index topped and began bear markets, and I’ve circled in green the 2 times the index bottomed and began new bull markets. Not surprisingly, the market topped when payrolls were strong, and bottomed when payrolls were weak. Because it’s lagging data. The market is forward-looking, and anticipated the subsequent fall or jump in the jobs data before the data was released. Over a long period of time, the general direction of the payrolls data holds value, but each month of data on its own is almost meaningless.

2. There is a large standard deviation in the data, meaning a difference of + or – 50k in the release is statistically noise. Unless the difference between the release and expectations is above 100k (which happens less than 25% of the time), the difference is statistically insignificant.

Put it all together, and the hoopla over the jobs report is driven as much by the hyperactive news cycle and the media’s inability to put anything in a non Democratic vs Republican / who’s up and who’s down in DC framing. It’s just easier to get people fired up that way! The broad trend in payrolls data over a longer time frame has value, and obviously these numbers estimate real people who are getting hired or fired and THAT IS IMPORTANT, but each report on its own should be viewed with a good dose of skepticism for its predictive powers of larger themes.

http://www.riskreversal.com/2013/02/...a-even-matter/

This is specifically discussing the financial markets, but the sentiment holds true for the monthly reports. From a short view the data is largely meaningless, and month to month ticks up and down are useless data without looking at a multi-season or multi-year view.

[soulflower]

http://www.riskreversal.com/2013/02/...a-even-matter/

This is specifically discussing the financial markets, but the sentiment holds true for the monthly reports. From a short view the data is largely meaningless, and month to month ticks up and down are useless data without looking at a multi-season or multi-year view.

I agree 100%.

The initial weekly and monthly economic data is almost always revised later. Our economy is huge and it takes weeks and sometimes months for the government to get accurate gauges of economic activity.