NFP: Outliers Are Where Investing Risks Lay

Today we find out just how seasonal those 200,000 new jobs were in December 2011. Consensus is for employment to grow by 140,000 — about par with population growth. Unemployment is expected to be unchanged at 8.5%.

As I am so fond of writing, no single month’s NFP matters all that much — focus on the overall trend to see what is significant. By way of the two charts below, the major overall trends have been improving. New Jobless claims have been ticking downwards since May of 2011. (Benchmark updates could be significant also).

We have seen a variety of retail sales disappointments — notably, Amazon.com (AMZN) and Ambercrombie & Fitch (ANF). Without more hiring and wage gains, higher consumer spending is going to be a difficult challenge to meet.

From a trading perspective, weakness would be problematic. With earnings slowing, the aforementioned soft retail, and the markets as overbought as they have been in a few months, the bulls don’t really need a weak number today.

From an investing standpoint, the outliers are where the risks lay: Too strong number (rather unexpected) might increase pressure on the Fed to end Operation twist and postpone QE3. A too weak number raises the possibility of a recession — currently thought of as not likely amongst most economists. A few observers — ECRI, Hussman, Rosenberg, Shilling, Faber, Rogers — think a recession is highly likely (For the record, I am still at 50-60% chance of recession, but willing to take that lower if the mixed data improves).

Hence, your reaction to today’s numbers should be a function of your positioning, holdings, timeline, and your risk management.

Employment situation report released at 8:30am

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Initial Jobless Claims (2/2/12)

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NFP (December 2011)

All charts courtesy of Barron’s Econoday

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