By David Berman
It can be difficult, if not impossible, on many days to figure out what is driving stock market indexes higher or lower. On Friday, though, it seemed clear that major indexes were moving higher because of a better-than-expected payrolls report from the U.S. Labor Department.
Barry Ritholtz reminds us that one month’s worth of data doesn’t mean a whole lot. In fact, it should be ignored. He explains on his blog:
"First, [non-farm payrolls reports] are the output of a model – increasingly counted less, and hypothesized more. Second, they are highly subject to revisions, as a real time snapshot of a very large and complex economy. Lastly, the monthly changes in a 135 million person labor pool are practically a rounding error. [A] 135,000 change is one tenth of one percent – 0.1%. And as we have seen in some recent months, a change of about 10,000 or so is a 0.01% of the full pool, well within the margin of error.”
Before the Labor Department released its February numbers on Friday morning, Mr. Ritholtz said that any jobs report that fell within a range between 100,000 job gains and 400,000 job losses wouldn’t surprise him. What’s more important is the trend.
But maybe investors have taken this view to heart, because the trend also looks pretty good. The Labor Department reported that employers shed 36,000 jobs in February – worse than the 26,000 jobs lost in January, but a lot better than reports issued during the depths of the U.S. recession. Last February, for example, U.S. employers cut 726,000 jobs. Over the past four months, the average losses have been just 24,5000 – with job gains in November.
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