We have written on this blog in the past that the monthly jobs report is very likely the most overrated economic statistic known to man. The labor department tries to estimate the change in the number of employed Americans each month on a base of over 140 million. The margin of error relative to the change in the number of jobs each month is huge. The initial estimate is often wrong and gets revised numerous times. The whole exercise is absurd.
And to magnify the stupidity, Wall Street tries to forecast the number and then overreacts to any figure that is better or worse than consensus expectations. A miss of 20,000 or 30,000 jobs, which is about 0.02% of total jobs, results in trillions of dollars of gains or losses across global financial markets.
What happened this month when the jobs numbers were released? They came in weak relative to Wall Street’s estimates and the prior month was revised down. The stock market initially sold off on the news thinking that a weaker economy was bad for stocks, but then quickly remembered that bad is good when it comes to stocks because bad means more free money.
The only problem is that Wall Street is pushing up prices on the basis of a few basis point change in the number of employed folk. The initial estimates are probably wrong and there has been no discernible change in the trend in the jobs numbers.
By all accounts, the job market continues to improve. When surveyed, a greater share of individuals continue to say that jobs are plentiful. And if the job market was weakening markedly, would auto sales have hit their strongest level in over a decade last month?
Probably not. Investors would be wise to put more stock in what individuals are saying and doing than what an infamously unreliable economic statistic might indicate.
Jeremy Jones, CFA
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