Only if you know what to look for; Not a good sign for the Dollar The S&P 500 (.INX) and Dow Jones Industrial Average (.DJI) fell in early trading on Tuesday as new jobs data hit the market. ADP, the payroll processing firm, reported that the economy lost the expected 371K jobs in July. That brings the unemployment rate in the U.S. closer to 10% which will continue to be a drag on recovery in the short term. The official government report from the Bureau of Labor Statistics will not be released until Friday. However, these two reports tend to shadow each other's trend if not repeat the same numbers. ADP processes payroll for approximately 1 in 6 of U.S. workers in the private sector. Therefore the report is insight into what is going on within corporate America and how that reality may differ from what is happening in the stock market. In fact, planned layoffs in July were much higher than June with the transportation and telecommunication sectors leading the pack. Statistical errors can skew the report Although the trend of the employment data is important and can be helpful in understanding how far away economic recovery is, the actual numbers themselves are subject to a very large "statistical" or standard error. This means that the actual layoffs last month may be far above or below expectations. It is difficult to draw too many conclusions based on just one data point. You can learn more about applying context when evaluating labor data in the articles below. So are the monthly unemployment numbers reliable and can traders draw any conclusions from that information? Each report by itself if probably less than accurate and traders should draw conclusions from the news at their own peril. On the other hand, you can use the weekly unemployment numbers if you know what to watch for. Typically, the monthly unemployment numbers carry more weight, but the weekly unemployment claims can provide you with tremondous ongoing information on a much more regular basis. The increase in unemployment claims today brought the aggregate number up even further. That is certainly not a good sign for the USD... or is it? This gets to the root of an issue many traders struggle with in understanding currencies. They deal with a news announcement all by itself and try to draw conclusions about its affect on the relevant (in this case the USD) currency.
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