Nonfarm Payrolls: A Figure to Overreact To

As I had suggested earlier, the nonfarm payroll number came out weaker than expected. Part of the reason for that was that the birth-death model added 81,000 fewer jobs than last month.

Perversely, net of the birth-death model, which I find statistically questionable, September is better than August. That said, the seasonal adjustment factors are so large here that I would argue that the real trend is not known, and that you have to assemble a mosaic of employment indicators to get a "feel" for the trends, which is better than nothing. My read on that "feel" is that employment is growing, but very slowly.

I would rather be approximately right than precisely wrong. There is so much trading that goes on off this release, which is statistically manipulated to a high degree, and revised multiple times thereafter.

I don't put a lot of trust in it, and would not make trading decisions off it unless it leads other market participants to take the other side of the trade vs. my "feel." In that case, I would fade the market movement. In this case, this noisy indicator is in line with my view of the market, so I sit tight.

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David J. Merkel, CFA, FSA, is a senior investment analyst at Hovde Capital, responsible for analysis and valuation of investment opportunities for the FIP funds, particularly of companies in the insurance industry. Previously, he managed corporate bonds for Dwight Asset Management. At time of publication, neither Merkel nor his fund had any positions in the securities mentioned in this column, though positions may change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. While Merkel cannot provide investment advice or recommendations, he welcomes your feedback and invites you to send your comments to [e-mail].

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