Employment Figures: Lagging or Leading?
Current conventional wisdom tells us that U.S. employment numbers as measured by the Dept of Labor’s non-farm payroll statistics are a lagging indicator. During the previous three recessions the stock market, as represented here by the Dow Jones Industrial Average in the bottom panel below did in fact rally before job increases became official in this monthly report. This makes intuitive sense in that astute money managers and market players have a lead time in learning what companies are doing in their sales and hiring practices before the official results are published a month later by the government agencies.
Many traders today however have a hard time cheerleading as each new employment report shows less and less job losses. While it is true that the rate of job losses has slowed, it is also true that over the last two months nearly 500,000 jobs have been lost. The current divergence between these two charts below reflects that the stock market anticipated improved economic numbers in the early Spring, but the ranks of the people losing jobs continues to grow into the Fall. While it’s true that the rate of jobs lost is lessening, the number of people without jobs is increasing.
Either the stock market got it right again, and jobs will start to come back, or market players put too much faith in the markets forsight, and mistook short-term momentum buyers playing a bear market bounce as sizable buying based on real demand.
What we do know is that if we continue to see a loss of nearly 500,000 jobs every couple of months it is going to be a serious economic drag. It is absolute that in analyzing markets we remain objective, but for the economies sake I hope the stock market is right this time. But I won’t plan on it.
Jay Norris
www.trading-u.com
jnorris@brewerinvestmentgroup.com
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It is good to get an insight exactly how Money Managers work and what they are looking for. And the fact that so many people are yet without jobs.
Your last paragraph paint’s a realistic stance very well.
(Ascot, UK)