Investors and market analysts pay close attention to the latest trends in economic data in order to gauge the potential impact to the investment world. One of the most closely watched among financial professionals is the jobs report, or more accurately, the Employment Situation Survey. The data, compiled by the U.S. Bureau of Labor Statistics, gives us a snapshot of the current U.S. labor market. The general assumption is that a strong labor market, with Americans earning good wages, keeps the economy healthy and growing.
Understanding the numbers
Two numbers are released monthly as part of the jobs report. The first is the unemployment rate, which is derived from a survey of 60,000 households. The second is the Industry Payroll Employment report, which estimates the number of new jobs created nationwide. This data is collected through a survey of 160,000 businesses and government agencies.
It’s not unusual for the two numbers to contradict one another. This is because the numbers are pulled from two different populations—the general public and businesses. For example, the surveys could find that a large number of jobs were created even though the unemployment rate increased. Alternatively, there could be a month with weak job creation and a decreasing unemployment rate. These contradictions could result from fluctuations in the number of people actively looking for work.
The data is updated frequently, which means the jobs report can be subject to significant changes that indicate a stronger or weaker labor market than the initial report uncovered. The rule of thumb: a strong jobs report signals solid job creation and low unemployment numbers.
What it means for investors
While the data can be interesting, investors need to be cautious about reading too much into the numbers issued in any given month. It is better to look at trends over a longer time period, such as 3-to-12 consecutive months, before trying to interpret significant meaning from the data.
Over time, employment data may provide insight into the overall direction of the economy, but it can be a double-edged sword. In general, a strong jobs report could bode well for stocks. It also could mean an increase in wages, which can be good for workers. However, higher wages could lead to potential risk for higher inflation, which is generally an unfavorable trend for bonds. No matter what the outcome, it’s important to remember that jobs numbers, like any economic data, should be viewed in the context of other economic and market factors.
Grant Collins,CRPC, is a Financial Advisor with Watson, Chaney & Associates, a private wealth practice of Ameriprise Financial Services, Inc. in Owensboro, KY. The practice offers fee-based financial planning and asset management strategies and has been in practice for more than 20 years. To contact him by phone, please call 270-684-8424 or by mail at 111 West 3rd St, Owensboro, KY 42303. www.ameripriseadvisors.com/taylor.collins.