Dissecting the monthly jobs report has turned into something of a Finance Twitter tradition. Once a month, the nonfarm payroll (NFP) numbers are released by the U.S. Department of Labor and the results receive as much attention in the finance community as the latest John Oliver segment gets from explainer journalists.
It’s quite a spectacle to behold as you get to witness people’s instantaneous feedback and analysis on the latest unemployment and wage data. This is just one report that eventually gets revised a number of times. At face value the numbers are fairly meaningless, but investors, economists and pundits try to put them into context and use the report to gauge the health of the economy.
I’m always fascinated to watch the reactions, because they reveal so much about how opinions are formed and how people’s short-term reactions come into play in the markets. Here were this week’s headline numbers:
Average Weekly Hours 34.5 versus 34.5 expected and previous.
Labor Force Participation Rate 62.6% versus 62.9% expected/previous.— Bespoke (@bespokeinvest) July 2, 2015
How people react and the context they put around these numbers can be very telling:
Jobs report: OK, not great. We're still creating jobs. No signs the economy is overheating. Growth is a bit slower than most had guessed.
— Justin Wolfers (@JustinWolfers) July 2, 2015
Meh
— Joe Weisenthal (@TheStalwart) July 2, 2015
https://twitter.com/austan_goolsbee/status/616589120417214464?refsrc=email&s=11
The labor force participation rate has dropped to 62.6%, the lowest level since Oct 1977- people are dropping like flies out of workforce.
— Carol Roth (@caroljsroth) July 2, 2015
This is a retirement-driven NFP report if I ever saw one.
— Matt Busigin (@mbusigin) July 2, 2015
In Reverse
Average hourly earnings decelerated to 2% pace, more signs of underlying weakness in the US economy
— Lawrence McDonald (@Convertbond) July 2, 2015
432,000 Americans dropped out of the labor force in June, sending the labor force participation rate crashing to 62.6, its lowest since 1977
— Peter Schiff (@PeterSchiff) July 2, 2015
Since January 2009, private sector has accounted for 109% of total job growth.
— Daniel Gross (@grossdm) July 2, 2015
Not only does the data and analysis require context, but investors have to be aware of the sources of their context and how the report is presented to them. It’s amazing how the same exact information can be interpreted differently depending on the source. After the headline numbers are released and the initial statement are made, comes my favorite part of this exercise — the snark, the jokes and the backlash:
https://twitter.com/reformedbroker/status/616585752386871296?refsrc=email&s=11
223K jobs and 5.3% unemployment is clearly not enough for the Fed to end 7 years of ZIRP
— zerohedge (@zerohedge) July 2, 2015
In a country of 155M jobs, a seasonally adjusted often restated number was off by 10K and people are questioning their narratives
— modest proposal (@modestproposal1) July 2, 2015
To me, the reactions and opinions formed based on this one economic report are basically a microcosm of the financial markets. Everyone sees the exact same information as it’s reported. But the conclusions drawn can be completely different depending on the person’s narrative, worldview or ability to interpret the data.
These divergent opinions show why some people are able to make money in the markets while others never will. Some people offer extreme views, others strike a balanced opinion, while some don’t seem to care. Maybe it’s all a little over the top, but I think it shows why the markets function as they do and how human nature shapes people’s opinions. The financial markets are the world’s largest laboratory for watching human behavior in real-time. The attention paid to the jobs report is a perfect example of this.
Further Reading:
The Cast of Characters on Finance Twitter
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