Why Only Single-Cell Organisms Invest on Monthly Payrolls Data

How simple do you have to be to change around your investments based on a single month’s unemployment stats? Very simple. Some would say basic, even.

Think back to the May payrolls “disappointment” we saw reported in the first week of June…

Nonfarm payrolls were up by a mere 38,000 in May. Bloomberg and Dow Jones were both projecting 158,000. Private sector payrolls rose by a mere 25,000 in May, shy of the 150,000 projected by Bloomberg.

Where things get even worse is that payrolls were also revised lower in the prior month. Nonfarm payrolls was revised down to 123,000 from 160,000 in April, and private sector payrolls were revised down to 130,000 from 171,000 in April. If you include the drops from the revision, it makes May’s report look far worse.

Sad!

That report was accompanied by the usual handwringing about the impending recession and the failure of capitalism and the trapped Fed and on and on. Then the implications for investors were bandied about along with the concomitant “rotations” that were supposedly necessary.

Fast forward a few weeks and we get a blowout number to the upside for July:

Payrolls climbed by 255,000 last month, exceeding all forecasts in a Bloomberg survey of 89 economists, following a 292,000 gain in June that was a bit larger than previously estimated, a Labor Department report showed Friday. The jobless rate held at 4.9 percent as many of the people streaming into the labor force found jobs.

That 255k was against The Street’s consensus expectation of just 180k. Importantly, both of the prior two months were revised higher (including May’s disappointment) by a total of 18k jobs.

To recap, we’re now talking about an expansion in payroll growth of 70 consecutive months, the longest in US history.

Sure, it’s been lumpy and, at times, agonizingly slow, but still.

A few takeaways:

• the less you do based on a non-farm payroll report, the better off you are.
• no one can accurately predict these numbers based on any economic model now in existence. The consensus is regularly steamrolled, in both directions.
• only a single cell organism, a troglodyte if you will, believes there is any signal in whether or not we add 100k or 200k worth of jobs over the course of 4 weeks in the context of a 150 million person workforce.
• even if you could get the number right in advance, that doesn’t mean you can concurrently nail the market’s reaction to it. Positioning is opaque and unpredictable. Remember this and never forget: Wall Street does not care about “good” or “bad”, only better or worse than expectations. 

Have a great weekend and keep your reactions in check. Don’t let the market see you catching feelings on a data point.