Through The Fly's Eyes: Sept. 2007 Jobs Report

from Joseph Lazzaro of Theflyonthewall.com


Jobs Rebound In September, But Long-Term Trend Is Key

September's U.S. job report released Friday reinforced two economics adages. Namely: 1) it's best to not put too much confidence in the U.S. Labor Department's initial monthly job statistic, as it will undoubtedly be revised; and 2) regarding job creation/reduction, it's best to use a 3-month or 6-month average, as it gives a more-complete and more-accurate picture of hiring conditions.

For example, in September's report, which indicated that 110,000 jobs were created - more than analysts had expected - the U.S. Labor Department also its revised the August job report to indicate that 89,000 jobs were created, up from a 4,000-job loss the Labor Department reported in its initial August tally.

Wall Street was encouraged by September's upside jobs surprise with the Dow gaining about 85 points to 14,063 in early Friday afternoon trading.

After the Labor Department reported the initial August tally, the financial community concluded that the U.S economy had slowed dramatically in Q2, perhaps to stall levels.

However, the revised August tally, combined with the September statistic, now suggests that the economy is slowing, but it has not completely collapsed. Further the combined August and September totals, and the mild economic growth implied, may help convince the U.S. Federal Reserve to maintain short-term interest rates at current levels when it meets again in late October.

The revision underscores the difficulty of placing too much emphasis on the Labor Department's initial tally for each month, as there's a significant chance it will be changed. For this reason, many economists and analysts agree it's best to use a 3-month or 6-month moving average, as it gives one a picture of the longer-term hiring trend, a more-indicative statistic. The 3-month moving average indicated a 44,000 job gain per month, through statistics compiled through August 2007. Add September 2007's stat with the August 2007 revision, and the 3-month moving average jumps to more than 90,000 jobs per month - a decidedly healthier job statistic than 44,000 jobs per month.

Further, another fact that demonstrates the danger of focusing on only one monthly job report: it's important to remember that the margin of error for each monthly report is frequently larger than the monthly job total statistic itself.

But the key point here is the inherent inaccuracy of the Labor Department's initial statistic for the month: large revisions - which was the case with August - can yield a substantially different picture of the U.S. economy's health. By extension, basing an investment or a business decision on only one monthly stat can prove to be a major mistake.