When the Department of Labor releases its monthly payroll report tomorrow morning, it will give investors and individuals an update on the status of the fledgling jobs market. Trading will pause, pundits will look up from their work, and candidates will cross their fingers, all on the off-chance that the latest figures will serve up some sort of previously unknown insight.
There's only one problem: the numbers are basically worthless.
"People look at the BLS (Bureau of Labor Statistics) number and treat it with some kind of respect. All it is is a guess," says Charles Biderman, CEO of TrimTabs Investment Research, in the attached video. "I don't understand why people look at it like it means something."
To be fair, the best guess for July is that 100,000 new jobs were created for the month and the official unemployment rate remained at 8.2%. Setting aside the veracity of the numbers for a moment, if economists nail it on Friday and the economy meets their expectations, it will not only mark the best month of hiring since March, but it will snap a three-month slump that saw payroll growth plunge to an average of just 75,000. Right or wrong, it will have an immediate impact on the mindset of the Federal Reserve and the wagering, if you will, on if and when they will offer up more stimulus.
Of course, the flip-side also holds true. Should the job slump spill over into July with a weaker number than was forecast, that will also have implications on the markets and the Fed — not to mention the election.
As much as we know the numbers are flawed, investors generally still accept them since they're the only numbers we have — that is, until they get revised — which just happens to be another Biderman peeve. As a result, he says TrimTabs uses "real-time data" to derive its payroll estimate (which is currently 115,000) by analyzing daily income and employment tax reports from the U.S. Treasury. Other areas of concern for him about the monthly report include the fact that a good chunk of it is compiled through a telephone survey of households.
Add in seasonal adjustments, benchmark revisions, as well as other conversi0ns and changes that take place periodically, and you've got yourself a moving target.
The official July report will be released at 8:30 a.m. ET.