Today the Bureau of Labor Statistics (BLS) releases the nonfarm payrolls number. This is typically the first Friday of every month, however, with the holiday-shortened week last week, the BLS will announce the number today. Simply put, this is the number of jobs that were added for the month of December–there is an obvious lag when reporting this number. The unemployment rate is also simultaneously released.
For a lot of people, this report is absolutely overblown, and totally useless. Barry Ritholtz, a very well-known Financial Adviser and notorious blogger, has expressed his strong views on how “over hyped” this report usually tends to be. I’d have to agree 100%–Barry has been very vocal regarding this report. In his opinion, investors should be more aware of the longer-term trend in the unemployment rate. Any one data point is useless, especially on the unemployment front. This number is almost always revised the next month, and even previous months are revised over and over again. Not only that, but the unemployment rate itself can be very misleading, and anyone familiar with unemployment statistics knows that you can have a lower unemployment rate without any real job creation. In fact, hardly any jobs can be added but we can still have lower unemployment. The growth in the labor force is a key component.
Courtesy of the Federal Reserve, here is a nice visual representation of the nonfarm payrolls going all the way back to the 1930′s.
Note the obvious rise in jobs that have been added each month, since we hit the lows of the recession several years ago. Again, for most individuals the longer-term trend in unemployment is what’s important. Don’t look too much into just one day.
Now, how does this relate to traders? Well, in my opinion, the way in which the market reacts to this data is more important than the data itself. One of the most difficult tasks that traders face is trying to get a “feel” for the market at all times. What happens if we have a good number? What about a number that is well below expectations? Is there still a healthy appetite for risk? These are all questions that we should be asking.
Just some of my thoughts as everyone gets prepped up for what could be a big day in the market.
As always, good luck out there.