As the saying goes, “There are lies, damn lies and statistics.”
And on the primary Friday of each month, the American public receives a wealth of latest statistics to view. Then US Bureau of Labor Statistics publishes the newest employment data. Within minutes of receiving the information, news organizations send push notifications, experts start voicing their opinions, and the headlines – and headline numbers – coalesce into a straightforward narrative, often along the lines of: “The work is done; the economy was saved” or “Employment dropped; we are all lost.”
These narratives consistently influence investors and financial markets.
How professor of finance, I feel these easy stories will not be helpful for investors. In fact, they’re harmful. The initial narratives remain unchanged, even when the underlying statistics contradict the numbers that make headlines. Therefore, on June 7, 2024 when the newest employment data will be releasedI predict that financial markets will overreact to headlines.
I get it: there’s a lot information within the two job reports released every month by the Bureau of Labor Statistics which you can pick and select which data you think that is significant. But ignoring the nuances is just not a great investment strategy. It seems that the economic reality is just too complex to fit right into a headline. As evidence, consider how markets have reacted to the last two months of employment data.
Dive deeper into the information
Lets start with Data on job offers in Aprilwhich was released on May 3.
The headline numbers were worse than expected: the unemployment rate checked to 3.9% from 3.8% within the previous month, with each non-farm and personal sector employment lower than expected.
stock Exchange united over this seemingly bad news because it viewed the disappointing jobs reports as an indication of a possible slowdown in inflation. This, in turn, could encourage the Federal Reserve to implement rate of interest cuts are back on the table for 2024 – or at the least that is what investors were counting on.
But if you dig deeper into the information, the situation becomes a bit more complex.
The unemployment rate actually got worse, rising by a tenth of a percentage point, virtually unchanged labor force participation rate. On the surface it doesn’t look too good: it looks just like the unemployment rate has increased by approx 10 basis points. This is since the bureau only calculates the unemployment rate to one decimal place. But what for those who go to two decimal places?
To do that, you wish to crunch some numbers yourself.
You can do that by going to the office Current press release regarding employment statistics, navigating through the assorted rows and columns, after which running the calculator to calculate the number for the month to one decimal place from what’s reported within the media. Then repeat the method for the last month’s data.
When you do that, you may see that the unemployment rate barely budged in April: it rose from 3.83% in March to 3.86%, a rise of just 0.03%, or 3 basis points. This suggests that the seemingly disappointing official unemployment figures weren’t that disappointing in any case.
Good headlines, bad news
You’ll see something similar for those who have a look at Employment data in Marchwhich was released on April 5.
The headline numbers were significantly better than expected, and financial markets celebrated. There was a complete increase in employment within the non-agricultural sector well above expectations303,000 jobs were created, as were the variety of employees within the private sector outside agriculture. The official unemployment rate dropped to 3.8%. On its surface there is just great news.
But for those who dig into the information, you get a unique perspective – especially the numbers showing what number of jobs have been created in government and industry. To find the relevant data – in “Table B Summary of Employment Situation” – you’ve to scroll a couple of pages to the “Current Employment Statistics” press release, however it’s all there.
for those who have a look at the stats from March, you may see that government positions account for over 20% of latest job openings. Moreover, the information shows that no jobs were created within the manufacturing sector in March.
These data suggest that March’s headlines – which suggested excellent labor market conditions – can have been deceptively sunny. Too many government jobs have been created and too few in industry. It’s not a really healthy job market.
As experts and the general public consider the employment statistics that come out on the primary Friday of every month, they needs to be careful not to simply accept the headlines as the entire story.
When it comes to the economy, easy narratives could be misleading.
