What Will Happen to Wall Street After Friday's Critical Employment Numbers?

by: Spicer Matthews

On Wall Street, recent unemployment numbers have stolen the show. Previously, economists looked past the minute monthly employment changes and instead focused on other economic figures, such as the trade surplus or deficit and changes in GDP.

However, this year, employment numbers have become critically important. The new stimulus package signed by the President is aiming to “save or create” three million new jobs. Subsequently, the market’s perception towards the monthly employment report has changed drastically, making it one of the most important measures of economic health.

February Employment to Rival January

Naturally, January 1st starts the fiscal year for many corporations. Knowing this, many contracts both end and begin when the fiscal and calendar year changes. Many jobs were immediately lost when the clock struck 12:01 on the first of the year.

Now February will be left to absorb the remains of many related and substitute jobs that will end as a result of closings in January. For example, were a factory to shut down in January, it may indirectly affect a power plant that thrived on the factory’s power usage. The result would be less employment in the power plant, spurring a reaction of more unemployment down the line. Wall Street expects job losses in February to total 615,000 people, 17,000 more than January.

Too Early for Stimulus Bump

It is still far too early to begin calculating the effectiveness of the recent stimulus package. Though many public projects that require employees are expected to begin, government bureaucracy does not bode well for a speedy allocation of funds. It could be months, if not years, before many projects even see a groundbreaking ceremony.

Focusing on Whole Employment Changes, Not Percentages

Investors should note that employment changes are static. The calculation for the number of people being laid off or hired in a month is simple. For each job lost, add a -1, and for each new job, add +1.

However, the methodology for calculating unemployment as a percentage of the workforce is far more difficult and has changed numerous times since its inception. Currently, the US government's statistics on unemployment as a percentage do not include the numbers of people who wanted a job, but gave up the hunt. To compare unemployment historically cannot be performed on a level of percentages, but rather whole numbers.

The actual unemployment numbers that will be released this Friday will certainly set the tone for the next market movement. Wall Street investors are pegging 615,000 job losses, but some economists anticipate that the number could be as high as 700,000 or even 800,000.