Week Ahead: Why The Jobs Report Is Not What It Was

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The monthly Bureau of Labor Statistics Jobs Report will be released on Friday morning and, under normal circumstances, that would be the focus of those that follow financial markets. As the U.S., and indeed the world, have gradually recovered from the deepest recession since the 1930s, we have become accustomed to focusing on the job market as an indicator of how that recovery is progressing, and the monthly job report has acquired a reputation as the “must follow” economic data.

A strong case can be made, however, that the reign of unemployment as the most important and impactful data release on markets, and in particular on the stock market, is over.

Like seemingly everything else at the moment this is, at least in part, to do with the election of Donald Trump as President. Whether you regard that election as a good thing or a disaster, one thing is indisputable: things are different this time. The normal niceties of Washington are gone and changes are happening thick and fast.

Guessing what those changes may be and estimating their potential effect on the economy and corporate America have become the game for the market, and fact based analysis, particularly of something backward looking data like the unemployment numbers, is taking a back seat.

That is not to say that the market won’t be watching keenly at 8:30 on Friday as Non-Farm Payrolls come out. Even a headline unemployment number that looks like full employment, there are things in the report that will give valuable information. Additions (or otherwise) to the labor force, the average length of the work week, and average wages will all be watched closely. The latter will probably be scrutinized most intently as rising wages could be an early sign of a transition to an inflationary environment.

Contrary to what those of us old enough to remember the 1980s might think, that is not necessarily something to worry about; the Fed has been trying to induce a 2% core inflation rate for some time and deflation, not inflation, has been the fear around the world.

The issue now though is that the incoming administration has said that it intends to embark on a trillion dollar infrastructure spending program and take various actions designed to create jobs. If wages show that the labor market is tightening considerably without that, then we have to believe that inflation will be an issue at some point soon.

That is why, rather than looking at the headline unemployment number on Friday or attempting a rapid in depth analysis of the more esoteric details of the report, I will be watching for the reaction in the bond and currency markets. Those are the places that market concerns about the possibility of inflation usually appear first. The dollar has recently retraced from the highs achieved on the post-election rally and inflationary concerns would turn that retracement into a full on reversal of direction.

Ultimately, as impactful as that may be in the long term, what the market is focused on right now is what policy to expect from the White House and what its possible effects will be. The early evidence this morning suggests that traders are getting a little impatient.

The rally was based on corporate tax reform and meaningful changes to the regulatory environment and the longer Trump focuses on things like crowd size and closing borders, whether to goods from Mexico or Muslims from the Middle East, the further away those things seem.

For this week, then, despite the approach of a data release that recently has been the most watched number of all, it seems that traders and investors should be looking elsewhere for clues as to market direction. Based on what we know so far of Trump’s style, it seems that they will be watching their Twitter feeds rather than their news screens for direction.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

Martin Tillier

Martin Tillier spent years working in the Foreign Exchange market, which required an in-depth understanding of both the world’s markets and psychology and techniques of traders. In 2002, Martin left the markets, moved to the U.S., and opened a successful wine store, but the lure of the financial world proved too strong, leading Martin to join a major firm as financial advisor.

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