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A 50-Year Perspective On Friday’s Jobs Report

  • Written by Syndicated Publisher No Comments Comments
    January 14, 2014

    Friday’s employment report generated a surge of economic commentaries focused on the unexpectedly low 74K increase in Nonfarm Employment. Forecasters were looking for a number closer to 200K. The blogosphere exploded with a range of opinions, the more dramatic of which spoke of the “huge miss” in new jobs.

    In retrospect, I believe Dennis Gartman, founder of the Gartman Letter, offered one of the most intelligent opinions on the topic in his CNBC interview.

    Here’s the gist of it from the CNBC website:

    Gartman’s comment that the numbers are “pulled from thin air” is a perhaps bit hyperbolic, but a look at the data over the past 50 years confirms his view that the month-over-month change at any point in time is meaningless. Here is a 50-year chart of the monthly percent change in this highly regarded economic indicator. I’ve included a 12-month moving average overlay.

    As is readily apparent, the monthly volatility of this indicator is quite extreme. The average monthly change over the timeframe in the chart is 21.6%. If you study the chart closely (click the chart for a larger version), you’ll see many monthly dips far more extreme than the December drop, including many isolated negative months during business cycle advances.

    My general tendency in studying economic data is the look at the long-term trend. What I find most interesting the chart above is the moving average. In addition to smoothing the volatility, it shows us an interesting phenomenon. Over this timeframe, the MA highs have been progressively lower since the peak in the late 1970s. The change has been gradual and is no doubt in part a reflection of the demographics of the Boomer generation. However, over the 10-15 years, the trend has also been impacted by the efficiencies of technology and the globalization of the economy, which continues to put pressure on national employment data.

    In past business cycles, the 12-month MA has generally sloped downward for several months before recessions start. The one conspicuous outlier is the second half of the 1980s double-dip recession, which was essentially engineered by the Fed to break the back of runaway inflation.

    At this point it is impossible to see Nonfarm Employment as a harbinger of the business cycle contraction. But the 12-month MA of this indicator is one we’ll want to watch closely in the months ahead

    Images: Flickr (licence attribution)

    About The Author

    My original dshort.com website was launched in February 2005 using a domain name based on my real name, Doug Short. I’m a formerly retired first wave boomer with a Ph.D. in English from Duke. Now my website has been acquired byAdvisor Perspectives, where I have been appointed the Vice President of Research.

    My first career was a faculty position at North Carolina State University, where I achieved the rank of Full Professor in 1983. During the early ’80s I got hooked on academic uses of microcomputers for research and instruction. In 1983, I co-directed the Sixth International Conference on Computers and the Humanities. An IBM executive who attended the conference made me a job offer I couldn’t refuse.

    Thus began my new career as a Higher Education Consultant for IBM — an ambassador for Information Technology to major universities around the country. After 12 years with Big Blue, I grew tired of the constant travel and left for a series of IT management positions in the Research Triangle area of North Carolina. I concluded my IT career managing the group responsible for email and research databases at GlaxoSmithKline until my retirement in 2006.

    Contrary to what many visitors assume based on my last name, I’m not a bearish short seller. It’s true that some of my content has been a bit pessimistic in recent years. But I believe this is a result of economic realities and not a personal bias. For the record, my efforts to educate others about bear markets date from November 2007, as this Motley Fool article attests.


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