Study the jobs report but don't try to be an expert investor - June 3rd, 2014
Here we are in the first week of June, and I’m sure you know what that means: We receive the employment situation report from the government Friday.
There is much concern over this report and many opinions on what it should or shouldn’t include, but I think that over the long term it is a helpful tool for the investor.
Remember, this report is a survey based on a random sample. No one is counting each employed or unemployed person. Let me break down this report and explain how I use it as a money manager.
First, we have the nonfarm payrolls. This is the month-over-month increase of jobs. Here I can see last month’s job increase or decrease and whether the number was revised, because more data become available as the month goes on. We will also see a consensus estimate of what is expected and the range of the low-to-high estimate.
A couple of important takeaways here: First, I look to see if the actual payrolls were up from the revised prior month. Second, did it come in above the estimate?
While these sound simple -- which they are -- investors will sometimes overlook this positive news and try to find something wrong with the report.
The unemployment level is also released with the prior-month consensus estimate and the consensus range. People want to get tied up in the other data about the underemployed and this and that. Yes, this is true, but it is still a positive number when looked at in conjunction with the other data.
One thing in the report that I usually don’t write about but do look at is average hourly earnings change month over month. The reason I don’t talk much about this number is that it is usually very small, about 0.0 percent to 0.2 percent. This number will become important someday when we have wage inflation. For now, I just look at it to make sure there are no signs of wage inflation.
Average workweek of all employees is an important number because many say all the new jobs -- or most of them -- are part time. Well, a part-time job is considered anything less than 30 to 35 hours per week. My thinking is that if the average workweek is 40 hours and we are coming in with 34 to 35 hours in the average workweek, we are doing pretty well.
Remember, this includes all part-time workers and high school and college students who work in fast food, restaurants and banks that need only part-time workers.
And while I know that there may be other ways to look at this number, such as with full-time employee equivalents, your results won’t vary that much because you’re dealing with average hours worked.
If the average goes up it means more hours were worked whether full time or an increase in part time, so employees are earning more and can spend more in the economy, which means corporate profits should go up and stock prices should follow.
The last piece of data is the month-over-month change of private payrolls. Here again, you will see the prior month’s number and what it’s revised to, the consensus estimate along with consensus range, and, lastly, the actual private payroll number.
This number is pretty important because it will show how the economy is doing by the creation of private sector jobs. The difference between nonfarm payrolls and private payrolls would be how many government jobs were created.
It would be bad if the difference is too high, because then the government – not the economy – would be creating jobs.
Read over the supporting data, which will show special circumstances such as snowstorms or hurricanes during the month. You will also be able to see which industries were doing the most hiring. As an investor, ask yourself whether you have in your portfolio some of those companies that are in the industries that are hiring and probably growing going forward.
So that is how I use the data to determine how I think the companies in our $150 million portfolio will do going forward and whether they will be able to increase profits. Don’t get hung up on trying to be an expert economist or a government hater -- your portfolio will suffer the pain if you try to get too smart.
Have a question or a company you'd like me to take a look at? Email me at firstname.lastname@example.org.
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