Quick Hit: What to Make of Jobs Data’s Persistent Swings

March’s US Employment Situation Report came out Friday, and we feel bad for it. Friday was a stock market holiday, so investors and traders couldn’t react to it. It couldn’t “cause” minute-by-minute swings that headlines would read far too much into. It couldn’t start out as “bad” for stocks if the market was down in the morning yet suddenly become “good” if the S&P 500 was in the green by lunchtime. The song and dance were silent. But maybe that is for the best, because the odd narratives surrounding the report—everyone trying to figure out if an expectation-smashing 178,000 nonfarm payroll addition was good news—showed the follies of trying to read into this.^[i] Investors are always best off looking forward, not at a late-lagging indicator from last month.

March’s job growth reversed February’s decline, which was revised down from -92,000 to -133,000.^[ii] But January’s job growth was revised up from 126,000 to 160,000, making the revisions kind of a wash.^[iii] Regardless, the up-and-down trend is one reason coverage wasn’t universally rah-rah. Some analysts also harped on the effect of external events like healthcare workers clocking back in after a strike affected February numbers and people returning to work after a stormy February. Seasonality tooketh in February and gaveth in March, they say. Others noted the average monthly trend over the last year is muted jobs growth, and Fed head Jerome Powell’s mid-March comment about the private sector having “zero net job creation” got renewed attention.^[iv]

And of course, the war in Iran loomed over all of it, with all coverage noting any hints of strength reflect a pre-war economy, before oil prices jumped and the Strait of Hormuz’s closure threatened supply of helium, fertilizer and other necessities for which oil and natural gas are feedstocks. The subtext: Businesses will cut hiring or possibly even lay people off as costs rise, adding economic headwinds, so if you were cheering March’s job growth you are probably too far over your skis.

It is a lot to take in, a lot to wrap the mind around. But headline coverage of economic data always is. Mercifully, you don’t need to tie yourself in knots over it. Stocks are forward-looking, while jobs data are late-lagging indicators, echoing whatever other economic data already showed. Growth creates jobs, not the other way around, so a healthy jobs market today largely reflects business conditions last year. It means businesses last fall had enough business and new projects to warrant adding headcount. So they made job postings, conducted interviews, presented offers and scheduled start dates. That process can take weeks or months.

As feel-good as a strong jobs report can be, it doesn’t tell you what the economy will do. Nor what stocks will do. Markets look 3 – 30 months or so out, weighing how corporate earnings in that window are likely to shape up relative to expectations. They look at economic drivers, political drivers (which can affect earnings through regulations, taxes and the like) and sentiment. And the market’s collective wisdom does a pretty good job of hashing it all out. All jobs data will tell you is what markets already priced in … long ago.