Jeff Miller | Apr 04, 2013 12:03AM ET
Once again, the monthly payroll report has a special significance. I am cautious for several reasons:
I will elaborate on each point in the conclusion, but let us first review the expectations for Friday's report.
Background
This preview is different! There are many concepts and facts that you will not see anywhere else. I also try to provide an angle both for traders and investors. There is an element of truth (what will eventually become clear) and an element of buzz (what will draw exaggerated attention Friday morning).
For many years I have written a regular monthly preview of the Employment Situation Report. I have done extensive research on all of the methods and even visited the stat guys at the BLS to discuss their approach.
My preview gives appropriate respect to the BLS, but also to the leading alternative methods. My best analogy was to a bean-counting contest. The winner was NOT the contestant who was closest to the correct answer. Instead, the winner had to predict the guess of a fellow contestant.
This is what we do every month. We want to know the truth about the economy. Instead of recognizing that there are several good estimates, everyone tries to guess what the BLS will report.
Please read cites the consensus estimate as 192K, while their own forecast is for 185K. Their private jobs forecast is about 15-25K higher, since the loss of public jobs is a continuing drag.
There is a list of repeated monthly mistakes by the assembled jobs punditry:
It would be a refreshing change if your top news sources featured any of these ideas, but don't hold your breath!
And most importantly, it would be helpful if anyone would realize that the BLS is just one estimate among others -- and perhaps not the best. The bean counter example illustrates this.
Trading Implications
In my experience it has usually been safe to be conservative in front of this report. The story is so complex that it is pretty easy to generate a negative spin. Your favorite perma-bear/conspiracy site does a good job of preparing. It is poised to comment on seasonal adjustment, birth/death adjustment, labor force participation, hours worked, and discrepancies between the payroll and household surveys.
Here are some fearless forecasts from the Old Prof:
As usual, the number is less important than everyone thinks. So here is the most important point:
The Fed will not change policy based upon the March employment report—no matter what the outcome. Everything that I have written here is completely understood by the FOMC. It will take a long series of results to influence Fed policy. Since traders and pundits do not seem to grasp this, the wise investor may get (yet another) opportunity.
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