The markets and nation were pleasantly surprised last Friday with the US non-farm employment change figure coming in at 11,000 jobs lost for the month of November. The previous month’s figure was also revised from 190,000 jobs lost to a significantly better 111,000 jobs lost. Considering that we were losing jobs at a rate of 500,000+ jobs earlier in the year, the figures seem to suggest that the economy might be at the brink of turning around. However, the details may be suggesting something else.
There is much more to a strong economy than the number of jobs and their growth rate. A common example to illustrate this point is that the government can hire workers to simply dig holes in a field. Then the government can hire more workers to fill up those same holes. Jobs have increased, but they haven’t produced anything, so it’s resulted in weakening the economy due to costs to the taxpayers. So the need for cost effective, productive jobs is apparent.
In the first paragraph of the Employment Situation Summary, the Bereau of Labor Statistics states, “In November, employment fell in construction, manufacturing, and information, while temporary help services and health care added jobs.”
The report can be found at: http://www.bls.gov/news.release/empsit.nr0.htm
Manufacturing jobs are critical, as they produce goods and increase wealth. Unfortunately those are the jobs we are continuing to lose. While the jobs that were created, temporary help services and health care, are important, they generally do not produce anything. Also, the temporary help services jobs are very likely related to the holiday season in the US, which means they will disappear by the new year. A consumer and service oriented economy is simply not as strong nor sustainable as a manufacturing economy. When manufacturing jobs turn around that will be a much stronger sign for the economy.
This little insight into the employment data can give a much different understanding of the report than just relying on the headline number. It can also explain why the markets are not showing too much strength after the report. So traders who like to trade the news or use fundamental analysis should be sure to dig through the details of the reports rather than just focusing on the headline numbers. Another key example is statements from central banks when a rate decision is made. Often times the rhetoric accompanying the rate decisions is the more influential piece of data.
