Deciphering Employment Data

 Understanding employment figures is more than just reading a number off a website. It is interpreting the numbers behind the numbers and not being mislead. Data posted regarding job growth, unemployment rates, the number of help wanted ads, and what sectors and regions have been impacted all factor into the overall economic picture.

Non-Farm Payrolls

Looking at job growth data, overall Non-Farm Payrolls have shown steady growth over the past couple of years, which is typically good for an economy. However, significantly accelerated employment growth, as seen in the mid 90s, needs to watch carefully for signs of an overheating economy. For bond and foreign exchange traders, these numbers are vital as they try to anticipate upcoming changes in interest rates. When forecasting upcoming GDP numbers, if there is roughly a 200,000 rise in jobs per month, it will translate into a 3% rise in GDP. Posted on the first Friday morning of every month, Non-Farm Payrolls data is best utilized when broken down into its component parts. It is broken down by the following sectors: Construction, Manufacturing, Trade, Transportation, Utilities, Information, Financial Activities, Professional and Business Services, Education and Health Services, Leisure and Hospitality, Other Services, and Government. For investors who prefer top-down analysis, this breakdown is a good lagging indicator as to which sectors are slowing or accelerating. However, it is critical to not only read the numbers, but to also do the research as to the drivers of those numbers. Lets look at an example of the numbers between the numbers. For the past 3 months, retail employment has been on the decline. An outsider might get the impression that we are heading into economic weakness or recession. However, when you look at the other sectors, it paints a totally different picture. First, let us consider the real reason for the decline in retail numbers. The May Company and Federated Department stores began the lay off of 6,800 workers this past spring following their merger. The Sears-Kmart merger is also producing similar effects. Furthermore, the Winn-Dixie closing of 326 stores resulted in 22,000 employees, which began showing up in the spring data. Compounding the effects of these one time events is the increased productivity of retail stores. The drive to increase revenues per square foot has increased the use of technology and increasing efficiency. So while it is clear that consumer spending has declined, coupled with the fact that there is strength in sectors of the labor market, in this situation, you should not use this as the measuring stick that the economy is tanking.

Initial Claims (Jobless Claims) and Unemployment Figures

Personally, I give more weight to the Initial Claims, which are people seeking unemployment benefits, versus the Unemployment Figures.