| The Truth Behind Unemployment Reports |
by John Jagerson The ADP report was released today, which usually precedes the official NFP report from the BLS who is also responsible for the CPI release each month. The news was mixed. Fewer jobs were lost in September than August but the improvement was less than expected. The report showed that the U.S. lost 254K jobs versus an expected loss of 200K. This may sound negative and to a certain extent investors may be feeling a little bearish today based on that data but single news events are not reliable predictors of future price trends. This article will illustrate the importance of context behind the labor reports and why the improving trend is actually much more important than the missed expectations.
You can learn more about reading and using investing news in the videos and articles linked below. - Why financial writers mislead - Why most investing news is meaningless - Why consumer confidence reports matter
Note: The video accompanying this article was originally produced in 2008. The concepts apply as much now as they did then. For traders that are unsure about the difference between ADP, NFP, BLS, CPI and a whole lot of other BS, this article should help. The NFP report tells us how many jobs were added or lost from the U.S. labor force. Obviously, a decline in jobs is a bad thing for the economy and a string of negative reports month after month is indicative of a recessionary environment. This is currently the situation in the U.S. and another very negative release is expected this week. Employment gains or losses are actually reported twice each month; the official government source (BLS) releases its version on the first Friday of each month and a private analysis from ADP (an outsourced payroll processing firm) appears on the Wednesday before the first Friday. These reports are developed from independent data sets but with a similar methodology. The reports have a very large statistical confidence interval (not very accurate) and are subject to major revisions, however the capital markets will often experience significant volatility each report date.
The long term effects on trend can be more reliable and are easily seen in equities and other "high risk" positions like the short JPY based carry trade. In today's video I will walk through a past ADP report as we prepare for the government version on Friday. The trend is still very negative and traders should look both ways before attributing too much bullishness to "less bad" data. Next: Avoiding trading scams Keep up with us:
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3.25 Copyright (C) 2007 Alain Georgette / Copyright (C) 2006 Frantisek Hliva. All rights reserved." |
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