Employment Report

Yesterday morning's employment report was, at first glance, disappointing. While payroll employment was expected to show a net change of about 125,000, the actual change was only 56,000, less than half the expectation. A good story describing this is in Money.com. While the payroll employment change was disappointing, the unemployment rate fell slightly from 5.1% to 5.0%. All of this is detailed in the official report by the Bureau of Labor Statistics.

A few things to note. Virtually all newspaper/Internet articles describing this are WRONG -- they state that the 56,000 number was the addition to employment. It was actually the net change in employment -- the difference between jobs added and jobs lost. In a post-manufacturing economy like ours, job loss occurs every month (unfortunately). About 15 or 20 years ago, what the newspapers described would have been accurate.

Note also how much of the discussion about this report centered on the unemployment rate. Did you hear anyone say (or write) that the labor force fell last month? A falling unemployment rate caused by a lower labor force (the unemployed dropping out of the labor force) is little cause for celebration! More importantly, the unemployment rate is a lagging indicator.

One last point. Average hourly wages rose more than expected, providing fuel to "inflation hawks," part of a bond market sell off yesterday. I wonder how much of this is caused by the fact that a number of the persons no longer employed as the result of the hurricanes had low and below-average earnings (tourism workers, etc.). Hmmm.

Returning to the bond market, the 10-year bond rose by 1.3 basis points yesterday to 4.66%, the dollar strengthened, and the stock market continued its recent rally. As an extra credit exercise (due at the beginning of class on Tuesday), graph the ten-year bond using daily data for the last year. Add comments, support/resistance, and indicator information, etc. with the StockCharts annotation tools (Note: when adding comments, leave a space after the last character before closing the box). Then do the same thing with two years of weekly data on the 10-year bond. In a short paragraph (a Word document where you can also paste the two graphs) contrast what the daily and weekly charts are showing.