The Devil In US Job Numbers
The Non Farm Payroll (NFP) number, aka the US Jobs number, is a prime example of how details really matter when trying to understand the significance of data releases.
For whatever reason, the market and financial media has determined that the US NFP is the most important data release in the data calendar, which means that traders pay a disproportionate amount of attention to it.
Consequently, a lot of analysis is based on the headline numbers: jobs added/lost and the unemployment rate. We have already discussed how the unemployment rate does not adequately reflect labor market realities. But what about the jobs number itself?
The NFP in Jan 2021 (if you’re interested in looking at the source data, do a CTRL-F for “Summary Table B”) is a good illustration of how the headline number can be very misleading. The headline figure printed 49,000 jobs, but a look into the internals of the data release shows that only 6000 of the 49,000 jobs were added by the private sector. A 49,000 print is already very low, but to have only 6000 of those be from private sector job creation*? It might as well have been 0!
In addition, jobs numbers are revised with every new monthly release. This might actually come as a surprise to some, because the media and commentary is almost always solely focused on the current headline number. In February’s release, the Jan 2021 headline number was revised to 166,000, and total private sector job creation was revised to 90,000! What was a dismal number a month before suddenly didn’t look so bad anymore.
More importantly, the complexion of interpretation has changed three times for the same data point.
- 49,000 jobs were added in Jan 2021! – “Not a good jobs number at all.”
- Only 6,000 private sector jobs! – “This is abysmal, very, very bad.”
- 49,000 is revised to 166,000, with 90,00 private sector jobs! – “This is actually decent!”
The point here is not to jump to conclusions as to what a headline NFP number represents about economic growth. Individual data readings, like the monthly NFP releases, are “events” in the complex system that is financial markets and economies (LINK 8 Iceberg 1).
While the financial media and mainstream commentary makes a big deal out of each data release, the truth is that they really offer little insight as to what is really going on in the rest of the system. How the data trends over time is much more useful, not to mention the nuances found hiding below headline numbers. Remember this when April’s number comes out!
*Private sector job creation is seen as more desirable than jobs created by the government, it’s because the private sector is the main driver of economic growth in the USA (and most other countries).
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