Markets are reacting strongly to today's Payrolls Survey, as they typically tend to do. But I believe investors put a little too much emphasis on this infrequently released, volatile, and often revised metric. I believe the much less volatile and more frequently published Weekly Jobless Claims is a much better statistic.
Just based on 5 year charts, one can see the relative volatility of each metric:
While both statistics are important in their own right, as each measure two different points in the labor market (one is first time unemployment filers, the other changes to Non-Agriculture employers' payrolls), they both tell the same story, except Weekly Jobless Claims does it in a much more frequent and less volatile (hence more reliable) way. Non-farm payrolls is so volatile it is difficult to take any meaning away from a single release, yet the market tends to react as if it is one of the most meaningful statistics available. Take the past two months, for example:
Initial Jobless Claims, Sept and Oct 2015
Non-Farm Payrolls, Sept and Oct 2015
Initial Jobless claims remained very stable through September and October, with week over week changes inside of 6%, and coming within analyst expectations by 5%. By contrast, Non-Farm Payrolls had a massive 32% miss VS expectations in September, then a huge 48% gain in October, for a whopping 98% gain month over month. When I saw the miss in September and the market reacting to it, I knew it was highly unreliable and likely to reverse the following month because initial jobless claims were painting a very stable picture of a healthy labor market.
While an important data point on the labor market, the volatility and lack of reporting frequency of Non-Farm Payrolls makes it less meaningful, especially in the context of more consistent and readily available figures such as Weekly Jobless Claims. Market participants should take it with a grain of salt, and rely on more consistent metrics.
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