Employment Climbs - See Beyond The Numbers

“Davidson” submits:

The monthly employment reports always trigger market responses with traders seeking insight to significant turns in existing trends. The Establishment Survey reported a rise of 304,000 with a 90,000 downward revision for Dec 2018. Revisions for previous Establishment Survey reports are routine and mostly ignored by investors who seek to trade on the current report. The Household Survey reported a decline of 251,000 and does not routinely revise previous reports. Neither is better at capturing the overall employment trend vs the other. Both are good measures even though neither is precise. All economic measures are imprecise and require revision as better information becomes available which means that single reports are meaningless measures of current economic activity unless placed in the context of history near-term and long-term. What is surprising is that so many still treat single economic reports as significant when it is the near-term trend within a historical context. I prefer the Household Survey which is the only estimate to include the self-employed. Light Weight Vehicle Sales SAAR (Seasonally Adjusted Annual Rate) are estimated at 17mil.

Both Vehicle Sales and Employment trends slow well before market peaks and inception of recessions. That there are no signs of either economic series rolling over at this time suggests we likely have at least a couple of years of continued economic expansion. What matters most is the high level of investor pessimism relative to economic and business fundamentals. There is a wide divide between current economic measures and investor perception. It is so wide that historical pricing suggests future SP500 levels could reach higher than $4,000 in a few years should investor pessimism shift to historical levels of optimism. Even though markets have always ended with high levels of optimism, “euphoria” according to John Templeton, prices are dependent on market psychology. Market psychology will always remain unpredictable. The best we can do is to estimate the potential changes in market psychology and its impact.

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Disclosure: The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or ...

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Moon Kil Woong 2 months ago Contributor's comment

The market will do fine if the tariff war ends and the rest of the world balances and if we don't end up with closed government yet again. It is remarkable this economy is doing so well given the recent negatives. If we pull out of some of these negatives we can see a nice run.