You Don’t Know Non-Farm Payrolls

How to Read the Monthly Jobs Report
Watch the trend in the monthly jobs report, not the number in any one month.
Bloomberg, December 5, 2014


Over the years, I have spilled a lot of pixels on why the monthly obsession on NonFarm Payrolls is misplaced (See e.g., this, this and this). What matters is not any single data point, but the overall trend. And as we have seen since the trend reversed in 2010, that trend has become positive. More recently, it has even been accelerating.

Many people seem blessedly unaware of this.

There is no doubt that this jobs recovery has not been evenly distributed. If you have a technical or graduate degree, it has been much easier to find a job, keep that job, and occasionally earn a raise and good benefits. Geographics matter as well, with oil boom states (North Dakota, Oklahoma, etc.), and financial centers (NY, San Francisco and Chicago) all seeing strong upticks versus other regions.

But the bottom line remains that the jobs data has been strong and getting stronger.

Lets do a quick review of the overall trend since 2009; it might surprise you. In that year, half of which was contractionary, the U.S.  lost on average 423,917 jobs per month. For the entire year, just over 5 million people lost their jobs. Every single monthly Employment situation reports was negative, with February being the best for the year at only down 6,000. March was the worst month at minus 826k.

January 2010 was the first post crisis positive jobs month at 18,000. The full calendar year had 5 of 12 negative months instead of the prior years 12 for 12. That year was when the trend was in flux, shifting from negative to positive.

Consider the average monthly jobs gains on a calendar basis over that time:

Year    Average monthly Change in NFP

2009   -423,916
2010   88,170
2011   173,580
2012   186,330
2013   194,250
2014   240,910


The last negative NFP month was September 2010 at minus 57,000 jobs. Since then, after a series of fits and starts, the American employment situation has improved dramatically. Each calendar year reflects an improvement over the prior year. That pace of gains has accelerated in 2014.

Since September 2010, we have had a tremendous consecutive runoff monthly gains – November 2014 is the 50th straight month of increasing payrolls. Over that 4 year, 2 month period, the US economy has gained almost 10 million jobs.

The average has been just under 200,000 monthly gains during that period. This is below what we typically garner in a post recession recovery, but better than what we expect during a post-financial crisis recovery.

And, this month is the 10th consecutive month showing more than 200k new jobs.

The last time we had a stretch of 10 or more consecutive months of + 200k was from March 1994 – March 1995.

There is a subset of people who have consistently dismissed the data, regardless of its steady improvements. But 50 months and 10 million new jobs later, it is becoming almost impossible to avoid admitting that that economy has not only begun healing itself, but the recovery may be accelerating.

Not that data will convince everyone: Some are politically biased, some innumerate, while others suffer from dementia. Of course, Zero Hedge is its own category of negativity wrapped up in doom and vitriol. (Well, at least the posts are well written and the charts are pretty).

For the rest of us, the potential acceleration in employment trend raises some important questions:

-What does this mean to FOMC policy on rates?
-Will this begin to show up as increases in wages?
-If that occurs, what does wage pressure mean for subsequent inflation?
-Might we begin to see companies step up their capital expenditure spending?
-What does this mean for corporate profits, and therefor equity valuations?
-How might this impact the 2016 presidential elections?

All of these questions are interrelated.

The acceleration in trend is significant. More than any single monthly report, this is where we can see a major impact – on policy, on wages and on valuations.

Welcome to the recovery.



Originally: How to Read the Monthly Jobs Report


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