Last Thursday, at approximately 8:30 a.m. ET, the attention of traders around the globe was focused intently on the the monthly statistical bulletin released by the Bureau of Labor Statistics — better known as the jobs report. The summary of the domestic labor market has become must-see financial TV, with every major outlet covering the release and racing to get the data to their audience.
The intensity of the media coverage gives a sense of gravity to the jobs report. The only problem is that the jobs report is very rarely of much use to investors. While many outlets attempt to distill the report down to a single number — which will be either bullish or bearish — the reality is that the jobs report incorporates a massive amount of data into several key metrics that are at worst contradictory and at best subject to interpretation.
Each month, this interpretation is completed as quickly as humanly possible. Instead of taking the time to translate into a thoughtful and useful headline, it’s plugged into the equivalent of Google Translate. If the nuances and complexity are lost in the process, so be it.
The analysis of the June 2015 jobs report runs the gamut, as illustrated below.
Mostly Positive and Certainly Disappointing
The Miami Herald attributed the market’s jump on Friday morning to a “mostly positive” jobs report:
A few hours later, after markets drifted into negative territory for the day, the headlines were revised to attribute the drop to a disappointing report:
The jobs report was also described as “certainly disappointing” in a headline at The Wall Street Journal:
To summarize, stocks rose early after a positive jobs report but finished the day lower because of a disappointing jobs report. Got it?
Low Is Good; Low Is Bad
Many publications highlighted the fact that the unemployment rate declined yet again, to levels not seen since 2008:
Others focused on a decline in the labor force participation rate, which painted a much less rosy picture of the report:
Both of these headlines are completely accurate summaries of the same report. They also make very different implications about the health of the U.S. labor market and economy in general.
Both of these data points, of course, also require a fair amount of context and background that won’t be found in the articles (more on this below).
Strong but Weak, Solid but Soft
In Portland, the jobs report was indicative of strong hiring:
In St. Louis, the “solid” report was cited as a catalyst for higher short-term bond prices:
The jobs report, of course, was also weak:
And over at MarketWatch, the headline indicated a generally “soft” jobs report:
So in addition to being “positive” and “disappointing,” last week’s jobs report was also “strong” and “solid” as well as “weak” and “soft.”
On Track and On Ice
The jobs report is closely watched in part because traders believe it is one of the key considerations in the Fed’s deliberations over when to raise interest rates. The jobs report was interpreted as an indication that an interest rate hike is “on ice” for the time being:
It was also interpreted to show that the Fed remains “on track” to raise rates at the end of the summer:
Heating Up and Cooling Down
According to CNN, the jobs report featured an “even healthier [unemployment] rate than most economists predicted,” and indicated that the economy is heating up along with the temperatures:
It was a very different story at CNBC, where the jobs report was instead indicative of a slow start to the summer after job growth missed expectations:
These outlets sent out similarly conflicting tweets within a minute of one another as well; CNN described a “good” jobs report while CNBC described the same report as “soft.” (Both did fulfill their obligations to mention Greece.)
Dow gains 40 points and S&P 500 rises 0.25% after a good jobs report, but Greece is still a wild card. http://t.co/A9OlUXl3FI
— CNNMoney (@CNNMoney) July 2, 2015
U.S. stocks up slightly following a soft jobs report and the crisis Greece » http://t.co/elJY1mS1CP pic.twitter.com/7PDOb8qUA3 — CNBC (@CNBC) July 2, 2015
Elsewhere on Twitter, the takes on the job report — and its political ramifications — were much bolder. Depending on your political affiliation, last week’s report was the latest piece of evidence in favor of the current administration’s brilliance or ineptitude.
First came the jubilant Democrats:
Unemployment falls to 5.3% — lowest in 7 years – Jul. 2, 2015 FOUR MORE YEARS, FOUR MORE YEARS http://t.co/uLyRV7lySQ
— Darren Sherwood (@darrensherwood) July 2, 2015
Jobs up, unemployment down. That ” lame duck” @potus keeps rackin’ up the wins. http://t.co/yn5fAF4MYp pic.twitter.com/GoxJ858DQr — Shoq (@Shoq) July 2, 2015
And then the outraged conservatives:
Nothing 2 cheer about in today’s terrible jobs report.Lowest participation rate ever,crappy wages, part time economy. #Obama = #Fail #moleg
— Tim W. Jones (@SpeakerTimJones) July 2, 2015
Lowest job participation rate since 1977. Obama White House and clueless liberals are thrilled. http://t.co/qJs4FaEefG #JobsReport — RufusKings (@RufusKings1776) July 2, 2015
These are, of course, only a small sampling of the outpouring of sentiment on both sides that came after evaluating the same statistical bulletin.
To summarize, last week’s jobs report was good, mostly positive, certainly disappointing, strong, weak, solid, and soft. Oh, and it was also definitive proof that Obama’s presidency has been both a wild success and a woeful failure from an economic perspective.
Tuning out the Noise
There is, perhaps, one word that describes all of the headlines and tweets above: noisy. The hope is that investors will feel as if this jobs report holds the key the markets; those who click on the headlines will be enlightened, while those who ignore the day’s news will be missing out on a crucial piece of information.
In reality, of course, the monthly jobs report is just one of many pieces to a constantly shifting puzzle. It receives a lot of attention because it is easy to understand (unlike pesky indicators such as the ISM Manufacturing Index or the business inventories report) and it can be easily politicized. But its impact on your long-term financial health is minimal. If you’re scrambling to make trades after skimming the jobs report headlines, you’re not doing it right.
If you’re interested in detailed, thoughtful, and nuanced commentary on the jobs report, there are a handful of analysts who take the time to provide just that:
- “Mish” Shedlock always publishes an in-depth look at the jobs report, including a review of the various alternative measures of unemployment.
- Ben Casselman at FiveThirtyEight has integrated the most recent report into a longer-term view of the U.S. job market, including a look at the part-time employment picture and the relative number of unemployed who have given up the search or landed a new job.
- Jared Bernstein, a Senior Fellow at the Center on Budget and Policy Priorities, always has some unique insights into the labor market report. In his summary of the June release, he points out a few changes that may simply be “noise” and updates a customized model used to show smoothed payroll growth.
- Bill McBride’s Calculated Risk Blog always takes a deep dive into the data; his June summary came in two parts, both of which were heavy on the charts and data. Bill looks specifically at a number of indicators, including a review of the long-term unemployed and participation among the key 25-54 demographic.
- A report earlier this year from the AARP sheds some light on the employment situation for older Americans looking to re-enter the workforce.
- The Brookings Institute regularly features commentary from experts on the unemployment situation; this month featured a short but insightful piece regarding stubbornly slow wage growth by Harry Holzer, the former Chief Economist for the Department of Labor.
- Robert Oak (a pen name) was pessimistic about the June report; his lengthy, well-researched post at The Economic Populist focuses on the pockets of weakness persisting in the U.S. labor market.
- The labor force participation rate has worked its way into the headlines recently. A brief published last year by the Center for Retirement Research at Boston College provides some much needed context for the flurry of “Lowest Since” headlines that will become increasingly frequent.
- James Pethokoukis also examined the labor force participation rate in great detail this month, putting the U.S. situation side-by-side with other major economies. His two word conclusion on the topic is refreshingly honest.
- The Intangible Economy blog takes a unique look at the BLS data releases, segmenting employers into producers of tangible and intangible goods.
- Brad DeLong has an excellent answer to the question: What do we learn from the latest monthly employment report?
- Casey Mulligan updated another custom employment metric for the June report (and also has nearly 300 posts on the labor market in general).
This article, The Truth About the Jobs Report, first appeared on Dividend Reference.