Investors: Time to Pay Less Attention to Jobs

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Pssssst-we have a secret to tell you. Most employment-related economic data-like Friday's April US Employment Situation Report-aren't relevant to investing.

Frequent readers of this website are already clued in: Jobs result from economic growth. They don't lead it. You can't forecast the economy based on such lagging indicators. What's more, stocks lead the economy, so jobs are even less useful if it's your portfolio you care about. But still, the monthly employment situation report gets tons of eyeballs, with many pundits, media types and even investment professionals drawing economic or market conclusions from it. But it's a trap, particularly in an election year-when biased takes on what drives jobs abound. With the presidential nominating conventions drawing near, it's high time investors focus less on statistics like jobs, which provide few useful inputs for assessing stocks but open many possible avenues to letting political rhetoric bias your investment decisions.

Here are some facts about jobs in April, with no analysis or take applied. It's fine to be aware of them. They may even be useful if you're job hunting or performing some other specific analysis related to labor. But again, we caution you that these figures have no relationship to where stocks were, are or will go from here. All these are sourced from the Bureau of Labor Statistics, here.

• Headline Unemployment Rate: 5.0%, unchanged
• Private Payroll Change: +171,000
• Total Nonfarm Payroll Change: +160,000 (governments cut 11,000 jobs)
• U6 Unemployment Rate: 9.7%, down from 9.8% (This rate includes those who didn't seek work because they were discouraged by economic conditions and the underemployed-those working part-time for economic reasons.)
• Unemployment Rate for Americans Aged 16 - 19: 16.0%, up from 15.9%
• Year-on-year change in Employment at Museums, Historical Sites, Zoos and Parks: +1,200 employees. (Exhibit 1)

Exhibit 1: US Employment at Museums, Historical Sites, Zoos and Parks

Source: US Bureau of Labor Statistics, Federal Reserve Bank of St. Louis, as of 5/6/2016. 12/31/2007 - 4/30/2016.^[i]

While we love a good zoo, it is probably intuitive that Exhibit 1-and the last two data points in our list-are not relevant for investors. We have never heard anyone suggest they are!

But the kicker is there is ample evidence the rest of them are basically about as trivial for investors. Private payroll employment hit a trough in the present cycle in February 2010. The US and global stock markets each bottomed in March 2009, and by the time jobs hit their nadir, the S&P 500 was up 53.6%-world stocks 54.3%.^[ii] (Exhibit 2) The US economy started growing again in June 2009. Waiting for jobs would have been costly if your interest is investments, and late if you base economic forecasts on jobs.

Exhibit 2: Total Payroll Employment

Source: Source: US Bureau of Labor Statistics, Federal Reserve Bank of St. Louis, as of 5/6/2016. 12/31/2007 - 4/30/2016. Stock returns from FactSet, S&P 500 Total Return.

We aren't saying you should totally ignore these data. They can confirm where the economy was. And, again, if you're studying something specific, maybe the unemployment rate among Americans 16 to 19 years of age is relevant. But "kids today" is not a viable investment thesis to be long or short stocks, so we question the utility of those data to investors.

Moreover, many forays into these data can lead an investor into sociological territory, which can be hazardous to your financial health. Oftentimes, such explorations are colored by political bias, which can affect your outlook for the economy and markets unnecessarily. For example, it is an electoral tradition in America for politicians to claim their opponent stinks on jobs while they are the bee's knees. Critics of establishment candidates will note a litany of obscure labor market metrics to have you believe job growth isn't "real" or decry the types of jobs created as low-wage and undesirable. Or they'll blame the opposite party for blocking their plans, which we are assured were dynamite for jobs. (Not in the sense of blowing them up.) This all ignores the simple fact that 85% of US payroll employment is in the private sector. The president and Congress don't directly move the needle in job creation.

In our experience, all too often investors get caught up in these debates, thinking the party of their choosing is "right for jobs" and the other disastrous. (Still others try to base forecasts of Fed action on it, which is a fallacious exercise worthy of its own article.) Those theories are probably just expressions of bias, but for stocks, that isn't important. Whether those theories are right or wrong, history shows job worries don't hamper stocks.