I was genuinely surprised by today's jobs report, which noted job gains of 243,000 and a drop in the unemployment rate to 8.3%. I was even more surprised during the trading day, since both bulls and bears used the jobs report to substantiate their position. That is a classic sign of confirmation bias.
Labor Force Participation Rate
Amidst the pre-market euphoria, ZeroHedge was quick to report that the headlines overlooked a drop in the labor force participation rate.This fell to a 30-year low of 63.7%, as noted in this chart from the BLS. The drop in the labor force participation rate makes a sham of the unemployment rate, since the labor pool keeps shrinking. In fact, 1.2 million people dropped out last month, so the percentage of Americans who are working has dropped from 67% in 2001 to less than 64% today. The drop reflects the rise in people on disability, the vast numbers of discouraged workers, and the generally sad state of the U.S. economy. This deterioration in the labor force participation rate was not reported by most media, which is a sad commentary of the state of financial journalism. (Alternatively, you might think there is a conspiracy at work here.) ZeroHedge does an excellent job of presenting the bear case, citing additional statistics here.
I get it: The numbers are tainted, there is huge seasonality, and the drop in the unemployment rate is bogus. But the jobs report did show a rise of 257,000 in private sector payrolls, and global manufacturing data have been strong recently. So is it possible that the labor picture has stopped getting worse?
You See What You Want to See
My distinct impression today, however, is that investors interpreted the jobs report through their bullish or bearish lens. The bulls focused on payroll growth, and the bears focused on the labor force participation rate. We all have a tendency to use data to support our worldview, and today's report is a great example of how everyone saw what he or she wanted to see.
Today's report doesn't affect two of my core convictions: Treasuries are in a bubble and the European crisis is a slow-motion train wreck of epic proportions. I am not convinced, however, that the U.S. is dead, and it would be major news if we are approaching a bottom in the U.S. labor market. It would be the biggest story of 2012.
It is always difficult to identify inflection points in the market. So even though the labor data are deeply flawed, there might still be a bullish signal here. It pays to keep an open mind.