Investors follow an avalanche of news every day, digest it, and apply it to their investments in the markets. For example, a negative Donald Trump tweet on China will lead technology investments down. A report on JUUL e-cigarette regulation will drop Altria and other tobacco stocks.
Economic reports are a little different. They do have impacts on individual companies, but they also have broad implications for the overall direction of the markets. Perhaps the broadest of these economic reports is the Department of Labor’s Employment Situation.
This report is critical for a number of reasons. First, it is a comprehensive report that covers every facet of the economy. More importantly, it is available within the first week after the month. This gives a real time update that the markets can digest. Finally, it is relatively accurate. Employment is easy to collect, and while there are revisions, they are minor compared to other reports.
Impacts on the Markets:
The fixed income market waits breathlessly on this report. They are searching the report for economic strength (which will raise interest rates), and for any sign of wage growth that might lead to inflation. As such, they dive deeply into the report and see whether the labor force increased, and whether work week hours increased. If the labor force is growing, that can take some pressure off of employers. On the other hand, if the work week is increasing it can pressure the economy by indicating that the economy is strong, employers can’t find new employees so they stretch the work week and in doing so, fuel the economy with overtime pay.
The stock market is watching as well. If interest rates rise, the stock market will usually drop. So institutional investors keep their eye on the fixed income markets. Additionally, if there are signs that the labor markets are heating up, investors worry that labor costs could rise. Or worse, there could be labor shortages that would erode profits.
More microscopically, you can track which industries are adding workers. This can tell you whether they are healthy or not. For example, this latest report showed that construction workers were being hired at a rapid rate. This is could news for the Real Estate sector. Additionally, it showed that manufacturing employment growth had slowed dramatically which continues the trend for this year. Below is the chart that breaks out net growth of employment by economic sector:
Impact of Today’s Release:
Today’s employment report had a little bit of everything. The number of new jobs were a disappointing 130k which is barely keeping up with population growth. Worse still, many of the new jobs were part-time government jobs tied to the census. On the other hand, the work week increased and hourly wages were higher. Both of these indicate that the labor market is tight.
The bond market reacted with the ten year yield dropping a couple of basis points. The stock market was confused, and didn’t move that much. The report is released at 8:30 in the morning so the stock market had an hour to digest the information before having to react at the open.
This employment release is the big one. Comprehensive, accurate and timely are the hallmarks of useful data. Naturally, market players wait on this report to come out, and then use this information to adjust positions.
One thing to note: while the headline numbers are important. There is plenty of market moving information material buried in the depths of the report.