“The monthly report dashed the expectations of economists, many of whom had predicted much more robust job growth.”
“…Job growth is worse than in recent months, and the nation continues to produce far fewer jobs than needed.”
“The report echoes recent data that suggest the U.S. economy is losing steam.”
“Certainly, as Friday's employment data showed, there are reasons to worry about what is happening to the broad economy.”
All of the quotes above could have applied to today’s BLS employment situation report showing employers added a total 113,000 jobs—76,000 less than economists’ consensus estimates. But only the last is from Friday’s report. In order, the coverage is of employment reports that missed expectations in November 2010, August 2011, June 2012 and March 2013—a period spanning nearly the entirety of a bull market and economic expansion that’s seen US stocks rise about 200%, the economy grow by an inflation-adjusted $1.6 trillion in output to an all-time high and, yes, total nonfarm payrolls grow by roughly 5 million.i Sometimes, investors would do well to take a step back and take in the totality of the situation to put economic conditions in broad perspective. To help, Exhibit 1 plots total US private sector payrolls (i.e., nongovernment) and overlays the quotes above with the report they refer to. It seems far from alarming.
Exhibit 1: US Private Payrolls, June 2009 – January 2014
Source: Bureau of Labor Statistics; Factset, as of 02/07/2014.
So it seems that on an absolute level, these fewer-than-expected hiring figures add up to more jobs. An obvious point, perhaps, but one often lost in the myopic sentiment of the day.
It’s true the improvement we’ve seen has been gradual, but that isn’t so vastly unusual as to trigger a mystery. Jobs are among the last indicators to improve—a factor neither new nor unique to this cycle. And it makes logical sense. Few employers hire before they need to in order to drive sales growth. Employees are a cost, which is exactly why layoffs happened in 2008 and 2009 in the first place.
You can see the typical historical pattern—stocks move first, then the economy, then employment—in this cycle. The bottom of the bear market immediately preceding this bull was March 9, 2009. GDP began growing in June 2009 (Q2), per the National Bureau of Economic Research (the official arbiter of recession dating). Private payrolls fell through February 2010.ii But if you waited until jobs grew to buy, you missed the first 11 months of this bull market—and a cumulative 67% of S&P 500 index total return. Investing based on unemployment data can be costly—especially if you’re investing not on a broad spectrum of real figures, but a singular, often misperceived data point.
We guess this is just a strange example of a case when less-than-expected can actually be more.
i Source: Factset, as of 02/07/2014. Real GDP for the period Q2 2009 – Q4 2013; Total nonfarm payrolls for the period June 2009 – January 2013; S&P 500 Total Return for the period 03/09/2009 – 12/31/2013.
ii Source: Federal Reserve Bank of St. Louis, Factset. Payrolls data is the Total Private Payrolls from the Establishment Survey of the Bureau of Labor Statistics Employment Situation Report.