Can Monthly Jobs Data Make You a Better Investor?

Most investors are looking for any sign out there to be bullish on the market. For anyone who watches CNBC or FOX Business, there’s always a buzz in the air right before The Department of Labor makes public their monthly employment data. For the most part, this is what the December announcement said:

• The unemployment rate has dropped for four straight months on news that U.S. employers added 200,000 jobs in December.
• For the year, 1.6 million non-farm jobs were created (1.9 million total, less 280,000 government jobs lost).
• The unemployment rate dropped to 8.5%, the lowest rate since February 2009.
• The hourly workweek rose from 34.3 to 34.4. Those underemployed (such as part-time workers) dropped from 15.6% last month to 15.2%.
• The long-term unemployed, those jobless for 27 weeks and over, lowered to 5.6 million from 5.7 million. This group represents 42.5% of the total unemployed
• Gains for the month were particularly strong in transportation, retail, manufacturing, healthcare and mining.

I think it’s safe to say that these numbers were received with guarded optimism. But a better question is: What does all this mean?

The Message Inside the Message

In general, increases in employment means that businesses are hiring and that these businesses are healthy and growing.

Thus, the more people newly employed now have money to spend on goods and services. And this ladies and gentleman is called growth – that all-illusive ingredient missing from our economy over the past few years.

While the overall number of jobs added or lost in the economy is big, there’s other information involved in the report that can weigh on financial markets:

• The unemployment rate as a percentage of the overall workforce. This is an important part of the report, as the amount of people out of work is a good indication of the overall health of the economy.
• Sectors that increased or decreased in jobs. You can now see which sectors of the economy may be primed for growth, or are hurting.
• Average hourly earnings. This is an important component because if the same number of people are employed but are earning more or less money for that work, this has the same effect as if people are added to or subtracted from the labor force.
• Revisions of previous nonfarm payrolls (NFP). The NFP number is meant to represent the number of jobs added or lost in the economy over the last month, not including jobs relating to the farming industry – releases.

Don’t Draw Too Many Conclusions From One Positive Report

For example, the gains in the transportation sector, which were concentrated in courier and messenger services, may be a seasonal blip, experts say. That could be the same for job growth with retail hiring in December.

Overall, investors shouldn’t invest in a sector based on one month of positive job growth, says Mark Lamkin, the CEO of Lamkin Wealth Management. The more important point is that a fairly wide range of sectors added jobs, which suggests the improvement wasn’t an anomaly, but a sign of real economic growth, Lamkin says. “This type of employment report sets the stage for 3% growth in GDP,” he says.

Is jobs data a one-stop shop to market insight? No, but a few months of compiled jobs data might be.

Good Investing,

Jason Jenkins

Article by Investment U