Does The Non-Farm Payroll Report Really Matter?

Over the past five years, it is safe to say that the non-farm payroll report by the Bureau of Labor Statistics has not been all that important. There isn't a single person on earth that can make heads or tails about the number. Sometimes the unemployment level will decline simply because people fall off of the list. Then there is the birth-death ratio which hardly anyone understands. That ratio is a calculation that takes into account the net number of jobs provided from newly started businesses (births) and business closings (deaths) during a period of time, typically a month in conjunction with the government-sponsored jobs report.

Are you confused yet? The bottom line is, do not make too much of any job report, instead, focus on the reaction in the stock market from the news.

Over the years, the stock market will typically react positive to a strong headline job number. However, for that to happen, other important factors will have to occur. These days the major stock indexes move higher on the back of the stronger USD/JPY chart (U.S. Dollar vs the Japanese Yen). So it is safe to say that this carry trade is providing a lot of the liquidity for the major stock indexes in the United States, Europe, and Japan. In other words, if the USD/JPY chart declines it is safe to say that the major stock indexes will decline as well. Sure, a strong job number could be a temporary positive catalyst for stocks, but the liquidity in the system is really the driving force.

The job number is also released on a Friday. If you have not noticed yet, there are very few big sell offs in the stock market on a Friday. Generally, the Friday trading session will finish flat to slightly positive. The Friday trading volume is usually very light and this creates very little selling pressure. Remember, if the economy is going to truly recover it will require consumer spending to take place. If the stock market were to plunge lower on a Friday, who would feel like spending a lot of money over the weekend? Remember, the weekend is when most people will travel, go to restaurant, or even do a project around the house. The central bankers that control the markets know this and will do their best to keep the markets buoyant on a Friday. After all, consumer spending accounts for roughly 70.0 percent of the gross domestic product (GDP) in the United States.

Bottom line, never put too much into these reports and the numbers released. Instead, focus on the reaction of the markets and trade the charts as the charts will tell the real story.

Nick Santiago
InTheMoneyStocks.com