Just the other day President Trump fired the head of the Bureau of Labor Statistics according to NBC News. According to Trump Erika McEntarfer was guilty of “rigging” the most recently released jobs report for “political purposes.” What irritated Trump was that it was a weak report, the worst three-months of hiring since the pandemic.
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Why Are Jobs Reports Important?
A 2023 article published by Charles Schwab explains why the Jobs Report Matters to Investors. The Employment Situation Report is released early each month by the Department of Labor. It is considered to be one of the best insights into the health of the American Economy according to Schwab. Thus, it is important for investors to follow these reports and understand the reports. Because the report contains important information and is first big economic report released each month it tends to have a significant effect on the markets. It includes the following:
- The total number of workers in the U.S. (minus farm jobs)
- Their average hourly earnings
- The number of hours worked weekly
The data comes from two surveys, the establishment survey of about 131,000 businesses and governmental agencies or about 670,000 worksites.
There is also a survey of about 60,000 households designed to cover a full demographic range.
This report is the most detailed and comprehensive view of the US economy available.
The report summary includes the number of non-farm or seasonal jobs gained or lost in the prior month and the rate of unemployment. It is broken down also by job sectors (industries). This part provides investors with valuable insights into where the economic health and growth is as well as where the weakness is in the US economy as well as where to expect investment opportunities versus risks.
Jobs Report Household Survey vs Establishment Survey
The household survey tells us how many people are working versus how many are without job (unemployed and looking for work). It tells us how many have been unemployed long term (twenty-seven weeks or longer). It also breaks down the numbers by gender and ethnicity. This part also shows how many people have given up looking for full time jobs and have taken part time jobs.
The establishment survey breaks it down by industry type and gives average hourly wages and average hours worked per week. as
Using the Economic Situation Report or Jobs Report as an investing or Trading Tool
An important skill for investors to cultivate is being able to determine which aspect of the jobs report is indicative or a new trend either up or down in the economy. By getting this right an investor can experience long term profits and investment success. Alternatively, traders commonly seek to anticipate unexpectedly good or bad numbers and will place short term trades for use options to protect such positions.
Trading the Economy Verus Trading Expected Federal Reserve Responses
A crazy thing about investing and trading these days is that all so often good economic news is read as bad news and vice versa. That is because a weak jobs report may drive the US Federal Reserve to lower interest rates in an effort to prop up the economy and a strong report may cause them to raise rates. Lower rates would tend to improve the economic picture going forward while higher rates would tend to slow the economy and adversely affect market prices.
Accuracy of Economic Data
We started this article with a reference to President Trump calling the Job Report “rigged.” If this is indeed the case someone has to have intentionally changed the numbers. Politico commented on Trump’s claims and actions and asks if we can ever trust jobs reports again. They report that the numbers involved in the report are fed into an IT system and the report then generated. The head of the Bureau of Labor Statistics who was fired does not see these numbers until two days prior to their release. This because the data collection and data processing goes on right up until the report is generated.
Whom Can Trust for Investment Indicators?
We generally assume that these folks are doing their jobs and reporting accurate raw numbers. We also assume that the IT system is not “rigged” in order to skew the data. However, Trump is not the first politician to bitch about jobs reports and other economic reports when they make them look bad. This has been going on for years. What is different this time is that in a fit of pique the President fired the person in charge which sets a precedent of intimidation that could affect to the Department of Labor collects and processes data going forward. The question for mom and pop investors is whether to trust a governmental department that is subject to continual congressional oversight or a sitting president who believes he has been made to look by the current report. It is your money that you are investing afterall
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