The first-Friday, just-after-coffee monthly payrolls and unemployment report is arguably the granddaddy of job market data. In fact, some might argue it’s the patriarch of all economic reports. It’s a time-tested, government-crunched release whose results tend to rile the stock market. And even on days when Wall Street’s leading stock indexes barely budge post-payrolls, it’s likely because traders have been positioning based on projected hiring stats over several sessions, leaving the news itself a bit of a snoozer.
Bottom line—this is an important report. But is it as potent as it once was? Technology has changed workplace productivity, which challenges the typical ways we measure job market strength and consumer confidence. Our latest, post-recession hiring rebound has come in fits and starts—more volatile, it would seem, than historical data prepared us for. Increasingly, jobs data may have to be scrutinized through new and timely filters.
Here’s a small, but broader sampling of reports commonly used to size up the job market, including some known favorites of the Federal Reserve itself.
Start with the Leader: Payrolls/Unemployment Rate
Beauty shot: It’s got a long history, it captures a wide snapshot of the job market, and it’s a straightforward, tradable stat as far as markets are concerned. Plus, within this report is a measure tracking the monthly change in wage growth. Longer-run patterns can offer a potentially telling early measure of inflation risks. Wage growth is good, for sure. But sudden spikes in wages could mean too much money is chasing too few goods/services, so companies may have to raise prices, which of course spells potential inflation—before it shows up in the consumer price index.
Warts: Traders often react to the headline: total payrolls. But a true sense of job market health may be lost in the details. For one thing, report readers must home in on the quality of changes, meaning, how much do new jobs pay? On the one hand, you want the mix to shift toward higher-paying jobs that presumably turn into big-ticket spending. The problem is that the number of high-paying jobs may not directly offset the falling number of lower-paying jobs, and the overall payrolls count can be affected. Sometimes the economy may need quantity as well as quality to keep the job-growth engine humming. The unemployment rate really only counts those folks who are actively looking but cannot find a job, so we have to read between the lines to understand the confidence of job-hunters. The labor force participation rate has been hovering around four-decade lows for the past year. Does that mean too low, for too long? Stay tuned. Keep this in mind, too: monthly payrolls readings are typically subject to revision.
Great Acronym: JOLTS
Beauty shot: The Fed digs it. Janet Yellen and others on her panel talk about this report—the Job Openings and Labor Turnover Survey—quite a bit. They, too, see limitations in the broad unemployment rate and payrolls data. The labor turnover report focuses on job availability, along with net hiring and separation trends (retirement and so on). What matters most with this report is “voluntary quits,” meaning workers who have the confidence to leave a job for what they believe will be a better one. It sizes up how confident the whole workforce is before it all shakes out in other monthly data.
Warts: This report is relatively new as statistics go, which means its historicals are limited, and some economists argue that its sample size is, too. The turnover report also lags the payrolls report by a month. It just doesn’t have the broad-based following that makes it the potentially tradable headline on a level with the monthly payrolls release—yet.
Manufacturing Power: ISM Employment Sub-Index
Beauty shot: With this report, we hear directly from an industry trade group, which presumably has an ear to the ground. The Institute for Supply Management releases two monthly indexes that broadly track industry expansion or contraction: one for traditional manufacturing, the other from the service sector (think real estate to health care to transportation, making up about 90% of the total U.S. economy, according to Bloomberg). These reports include several sub-indexes, including employment, which are released close to the conclusion of the month covered. The sub-indexes can be a nice accompaniment to monthly payrolls to help confirm trends. The April ISM-Services employment index hit a six-month high, for instance, much stronger than the March payrolls report indicated. April payrolls, released after the ISM report, showed a similar bounce.
Warts: Academics have warned about relying too heavily on a monthly survey that collects opinions and is turned around rather quickly. Analysts may argue that government data is slower to be released because its methodologies collect from more comprehensive samples. They point out that the primary value of a report like that from ISM is its anticipation of later “official” data, including the Federal Reserve’s measure of industrial production.
Frequent Check-In: Weekly Jobless Benefits Claims
Beauty shot: It’s always good to be regular. This report, a proxy for layoffs, hits every week, which can provide the market volatility that traders crave.
Warts: The claims release, even though it’s adjusted for seasonal factors (say, harvesting time), can’t always fully adjust for unexpected weather in major population areas, labor strikes, and other factors. It’s best to follow its four-week moving average, which smooths out some of these short-term bumps. Keep in mind that the claims tally from mid-month usually factors directly into the monthly payrolls/unemployment report, so some spikes in weekly claims may not be fully captured in the unemployment report. There are other structural factors that must be considered, namely that many states tightened the rules and time frames for unemployment benefits, so people who previously could or were claiming benefits were dropped off the rolls. This has an impact on the continuing claims count, as many industry economists have noted.
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