Thursday, January 3, 2013

Employment, seasonality, and noise

The monthly employment report can be a high volatility day for the markets.  The ADP report ( came in above expectations and this was most likely the reason for early weakness in bond prices. (before the Fed Minutes release.)  However how one looks at the data can change your perspective.

Monthly employment numbers, ADP and Federal
Source: Federal Reserve
ADP data is shown in red, with Federal data shown in blue. Looking at the data, it does look quite random, great recession notwithstanding. It jerks up and down with no apparent order and the ADP data does not appear to track the Federal data well.  No wonder the markets can be volatile on employment release days.

Let us look at the data a slightly different way ...
Year over year change in employment, ADP and Federal
Source: Federal Reserve
Same data, just looking at a year over year percentage change instead of an absolute monthly change.  Looks a little different doesn't it?  There are minor variations in the two curves but not much.  Looking at the data this way however, it appears we are on the downslope of employment growth and that great ADP number which was released today doesn't look so impressive does it?

I'm not implying what tomorrow's employment report will look like, just a hint that how you look at the data can make a big difference in what conclusions to draw.