The inherently complex payrolls report
This month’s payrolls report is one only a statistician could love. The official press release contains three whole pages on the subject of revisions and rebenchmarking, on top of the box on the front page: the very clear message is that we’re starting a new year, and that it’s a very bad idea to compare the January numbers to the December numbers.
That said, no one would have been particularly surprised by these numbers even if they were directly comparable: they’re basically exactly in line with what we’ve been seeing for months. Payrolls growth is constant, unemployment is flat: nothing’s getting better, nothing’s getting worse. And if you exclude some of the more volatile categories, that trend is even stronger. The good news in the report is about levels rather than changes: the total number of Americans on payrolls is now 134,825,000, while last month we were told that it was just 134,021,000. That means the number of Americans with a job is 800,000 higher than we thought last month, even if the unemployment rate, at 7.9%, is no closer than it was in September to the Fed’s 6.5% target.
Frankly, the payrolls report should be of interest mostly to statisticians and econometricians. The error bar for the number of jobs added is large, but the amount of data in there is enormous: the jobs report is an amazingly useful resource for people who want to study the state of the US economy over time. The problem is that it’s also the earliest indication that the markets get of how the economy is doing each month, and as a result it moves markets more than any other scheduled data release in the world, with the possible exception of FOMC announcements. In our short-attention-span world, where anything that moves markets must be news, it’s far too easy to get distracted by monthly noise — especially when people like me feel the need to weigh in every month.
The fact is that the jobs report is a sprawling, messy thing at the best of times, and it’s especially so this month. We only ever find out with hindsight whether the immediate market reaction was rational or silly, and the same goes in spades for the flurry of activity that greets the report on Twitter every month. Even the unemployment rate, which is now being explicitly targeted by the Fed, isn’t crucially important: Ben Bernanke has made it very clear that he’s going to take a big-picture view of the employment situation to determine when it’s time to raise interest rates, rather than just target the U3 rate narrowly, with no attention paid to things like the workforce participation rate.
To be honest, this month’s payrolls report probably isn’t even the most important data release of the day, let alone the month: the data from the manufacturing sector of the US economy is much less ambiguous, with the ISM report coming in strong and GM sales looking impressive. It’s an open question, of course, as to whether and how industrial strength is going to make its way through into full employment. But don’t look to the headlines atop this month’s payrolls report for answers. If they’re in there at all, they’re deeply buried, and not easy to find.