U.S. Nonfarm Payroll: A 50-Year Perspective

By: PhilStockWorld

Courtesy of Doug Short: Friday’s employment report generated a surge of economic commentaries focused on the unexpectedly low 74K increase in Nonfarm Employment. Forecasters were looking a number closer to 200K. The blogosphere exploded with a range of opinions, the more dramatic of which spoke of the “huge miss” in new jobs.

In retrospect, my view is that Dennis Gartman, founder of the Garman Letter, offered one of the most intelligent opinions on the topic in his CNBC interview.

Here’s a look at the CNBC interview:

Gartman’s comment that the numbers are “pulled from thin air” is a perhaps bit hyperbolic, but a look at the data over the past 50 years confirms his view that the month-over-month change at any point in time is meaningless. Here is a 50-year chart of the monthly percent change in this highly regarded economic indicator. I’ve included a 12-month moving average overlay.

As is readily apparent, the monthly volatility of this indicator is quite extreme. The average monthly change over the timeframe in the chart is 21.6%. If you study the chart closely (click the chart for a larger version), you’ll see many monthly dips far more extreme than the December drop, including many isolated negative months during business cycle advances.

My general tendency in studying economic data is the look at the long-term trend. What I find most interesting the chart above is the moving average. In addition to smoothing the volatility, it shows us an interesting phenomenon. Over this timeframe, the MA highs have been progressively lower since the peak in the late 1970s. The change has been gradual and is no doubt in part a reflection of the demographics of the Boomer generation. However, over the 10-15 years, the trend has also been impacted by the efficiencies of technology and the globalization of the economy, which continues to put pressure on national employment data.

In past business cycles, the 12-month MA has generally sloped downward for several months before recessions start. The one conspicuous outlier is the second half of the 1980s double-dip recession, which was essentially engineered by the Fed to break the back of runaway inflation.

At this point it is impossible to see Nonfarm Employment as a harbinger of the business cycle contraction. But the 12-month MA of this indicator is one we’ll want to watch closely in the months ahead.

- Phil

www.philstockworld.com

Philip R. Davis is a founder of Phil's Stock World (www.philstockworld.com), a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders. Mr. Davis is a serial entrepreneur, having founded software company Accu-Title, a real estate title insurance software solution, and is also the President of the Delphi Consulting Corp., an M&A consulting firm that helps large and small companies obtain funding and close deals. He was also the founder of Accu-Search, a property data corporation that was sold to DataTrace in 2004 and Personality Plus, a precursor to eHarmony.com. Phil was a former editor of a UMass/Amherst humor magazine and it shows in his writing -- which is filled with colorful commentary along with very specific ideas on stock option purchases (Phil rarely holds actual stocks). Visit: Phil's Stock World (www.philstockworld.com)

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