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Is The Non-Farm Payroll Number Even Real Anymore?

Published 12/07/2012, 09:56 AM
After the nonfarm payroll release this morning, it appears that this economic announcement is becoming more and more noisy, as traders are starting to put less and less emphasis on it. Granted, the markets will move on it for a short-term gain or loss, but in reality by the time the trading day finishes we normally don’t move much.

Perhaps this is because of the methodology used. There are a Lot of “guesstimates” that the Bureau of Labor statistics uses in order to come up with the final number. For example, the November jobs number came out as adding 146,000 new jobs to the labor force in the United States. This was well above the forecasted 89,000 added, and seems to suggest that hurricane Sandy had very little effect on the hiring practices in New York or New Jersey. I find this very difficult to believe, and it’s likely that we may see more revisions in the future.

This begs the question “Why do we even pay attention to this number?” By growing suspicion is that the entire market knows that the number is a fallacy, but also know that plenty of other traders out there will simply traded because it’s the best indication we have.

Also telling for the November number is the fact that we can “add” 146,000 jobs, while 350,000 people just simply disappear from the job market. This does not sound like a positive number to me. After all, if you subtract 350,000 from 146,000 you get -204,000. For my money, the sound like a negative number. Yet at the same time we have seen the unemployment rate in the United States dropped from 7.9% to 7.7%. This is the type of mathematics that only the government could come up with.
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Going forward, I think that eventually the ADP employment number that comes out a few days earlier will gain in its prominence if they can get the formula correct. This is a relatively new indicator, and as such there are still some anomalies and need to be worked out from time to time, but one would have to think that ADP does not have some type of underlying motive to fudge the numbers. The same cannot be said from the government, as shown just before the previous election. Was this done on purpose to help reelect the President? I don’t necessarily think so, but it certainly does nothing to dissuade the conspiracy theorists that we “took back” 51,000 jobs that were mysteriously added just before the election during this last announcement.

My best advice to traders is to simply ignore these damn numbers and trade the markets after they calm down. In fact, most of the best traders I know simply are nowhere to be found on nonfarm payroll Friday as they go out and do more important things than sit there and stare at the trading platform. Once the trading day is over, you can see how things truly affected the market. Until then, it’s just a mess of back and forth panic and computerized algorithm driven trading.

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