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Why The July Jobs Report Is Usually Way Off-Base!.

  • Written by Syndicated Publisher No Comments Comments
    August 6, 2012

    Okay, so we know that the monthly jobs reports are notoriously difficult to predict, and therefore almost always come in with a big surprise in one direction or the other.

    We also know, as I point out each month, that the history is that the initial reaction to those surprises is a big market move that includes a one or two-day triple-digit move by the Dow in one direction or the other.

    And we know that the initial reaction is then often reversed over subsequent days, and the market returns to whatever its focus was prior to the jobs report.

    However, I did not realize just why the jobs reports are so difficult to predict, or why July’s reports are notorious for so often being revised quite dramatically later, until I read a New York Times article that I tweeted out to my followers on Twitter yesterday (@streetsmartpost).

    We all know the jobs numbers are ‘seasonally adjusted’, in an attempt to smooth out the trend by estimating what short-term temporary fluctuations might have taken place in a given month, and adding or subtracting ‘ghost’ jobs to compensate. For instance, one of the adjustments in the summer months is for teachers who go on summer break but will then come back.

    But I had no idea of the extent of those seasonal adjustments.

    One example given in the article is that last month the BLS estimated that the economy actually added 391,000 jobs in June, but after its seasonal adjustment it reported that only 80,000 jobs were added (a disappointment that temporarily crushed the stock market).

    The article says the seasonally adjusted numbers for July often undergo such substantial subsequent revisions, that over the last ten July’s the revisions have changed the originally reported numbers by an average of 62%. And in three of those ten years (2002, 2003, and 2007) the revisions were enough to either change previously reported job gains to losses, or previously reported job losses to gains.

    If yesterday’s report was off by that average 62%, then the reported number of 163,000 jobs would be revised a few months from now maybe to the upside to a gain of 264,000 jobs, or to the downside to only 62,000.

    To read the entire article click here http://economix.blogs.nytimes.com/2012/08/02/beware-the-jobs-report-of-july/?smid=tw-share. It’s well worth the read.

    By the way the article appeared on Thursday, so was not an attempt to downplay the positive surprise in yesterday’s report.

    It does make one wonder how wise it is to react at all to the report, not only because the initial reaction is so often reversed over subsequent days, but is apparently so likely to be completely in error anyway.

    This morning come’s further information from Zero Hedge as reported in Barron’s, that the Bureau of Labor Statistics added 377,000 jobs as a seasonal adjustment before reporting yesterday’s jobs as being up 163,000. Zero Hedge says it was the largest seasonal adjustment to a July jobs report in the last ten years.

    Updating those short-term triangle formations again.

    The short-term volatility of recent weeks has been dramatically whipsawing.

    The Dow rallied 1,062 points from Jan. 1 to May 1, then declined 1,178 points to June 4, and has now rallied back 995 points to yesterday’s close.

    It’s interesting that 456 points of that rally, almost half, took place in just 3 days two weeks ago in reaction to ECB President Draghi’s surprise statement that “Within its mandate, the ECB is ready to do whatever it takes to preserve the euro. And believe me it will be enough”.

    When it quickly turned out that the ECB apparently can’t do much “within its mandate”, and will have to try to put a program together with the EU and other agencies, the Dow then plunged 196 points over the next 4 days.

    And then in reaction to yesterday’s jobs report it spiked back up 217 points yesterday.

    The volatility has been playing games with those interesting short-term triangle patterns I’ve been showing you. What makes the patterns interesting is that the direction of a break out from such a pattern usually indicates a market’s next direction for awhile.

    The volatile change of direction every few days has had the potential breakouts bouncing up and down between the upper limit and lower limit of the formations, first looking like the break out will be to the upside, then the downside, and then the upside again.

    I’ll just show the updated charts in the same order as before with no comments.

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    Other Voices:

    The Financial Times‘Signs of Stabilization in U.S. Economy As Jobs Figures Surpass Expectations’“The U.S. added a better than expected 163,000 jobs in July, according to official figures released yesterday, in a sign that the recent slowdown in the world’s largest economy may have stabilized.”

    Barron’s, Michael Santori: A Monthly Snow Job?’ “Could it possibly be that a swing of 83,000 jobs [from 80,000 in June to 163,000 in July] in an economy of more than 140 million employed persons justify the S&P 500 – meant to value the profit stream of Corporate America – sitting 2.6% higher?”

    The Wall Street Journal: ‘ECB Follows Words With More Words.’ Mario Draghi had written a check he couldn’t cash. The ECB president promised last week to do “whatever it takes” to save the euro but the ECB didn’t actually do anything at Thursday’s meeting. . . . . . At the very least, the euro-zone faces a long hot summer until Draghi’s plans become clearer.”

    Reuters, Berlin, this morning: ‘ECB saves Greece From Bankruptcy By Securing Emergency Loans.’ “The ECB has saved Greece from bankruptcy for the time being by securing it interim financing in the form of additional loans from the Bank of Greece. . . . . The move should enable the Greek government to access up to an extra 4 billion euros of funds, enough to ensure the country can keep its head above water until the ‘troika’ of the EU, ECB, and IMF decide on the disbursement of the next tranche of money from its aid program in September.”

    To read my weekend newspaper column’ click here: Central Banks Revealed They Are Now Impotent’, August 3, 2012.

    Subscribers to Street Smart Report: In addition to the charts and our outlook in the premium content section of this blog this morning, there is an in-depth U.S. market charts and signals update in the subscribers’ area of the Street Smart Report website from Wednesday. The next issue of the newsletter will be out next Wednesday, but please stay tuned to the hotline in the interim.

    Images: Flickr (licence attribution)

    About The Author

    Sy Harding publishes the financial website www.StreetSmartReport.com and a free daily Internet blog at www.SyHardingblog.com. In 1999 he authored Riding The Bear – How To Prosper In the Coming Bear Market. His latest book is Beat the Market the Easy Way! – Proven Seasonal Strategies Double Market’s Performance!
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