A Jobs Number By Any Other Name - Riddle 4

The media covering the US Economy and financial markets reports out each month on the Bureau of Labor Statistics’ Jobs Report number. The Jobs Number is one of the metrics used to indicate if the Economy is doing performing good or bad or somewhere in-between. In the latest Jobs Report measured jobs growth at 273K new employed individuals. This was a higher number than anticipated by economists. There are many factors that can and do have an effect upon this monthly number which means that interpreting it is an art, a science, and also an arcane skill.

Due to current events the forecast for the March 2020 Jobs number is expected to be impacted negatively. Whether the estimate is better made by those who rely upon economic arts, or scientific methods is unclear; but it may be that the best estimates will come from the few (if such exist) that can employ their enigmatic skills to conjure a forecast. With little to go on at this juncture, I would not be surprised to see a March Jobs Number of 150K or less. But even if I’m right how do you assess if that’s a good number, a bad number, or a meaningful/meaningless number?

Maybe, a short test would help; or at least provide a frame of reference that seems lacking in the general coverage of the monthly news reports. With that, let’s do some Number of Jobs questions.

Question 1. Is there a number of jobs needed just to keep the Economy where it was each month?

Question 2. Could the number of jobs added to the Economy increase and the Unemployment rate go up? If yes, how; if not, why not?

Question 3. If the status of the Economy is reliably measured by the employment rate and hence the Jobs Numbers, does that indicate that if the Jobs Numbers fall that the Economy is worsening, and conversely if jobs increase that the economy is improving?

Question 4. What number of jobs is needed each month to ‘keep pace’?

Question 5: The following chart shows how far above or below the number of jobs is relative to the ‘keep-pace’ run-rate (baseline). From this chart how is the Economy progressing based on the number of jobs?

You may or may not be looking for the answers, and you may not find them below; but if these are the answers then you must either have questions or you have the answers.

Answer 1: Yes, at least as long as the US population continues to grow. If you don’t add jobs each year as the population grows than the unemployment number must increase.

Answer 2: Yes. There are any number of ways this could happen. Consider Question 1’s answer. In addition, even if the number of jobs balanced with population growth, if the “Participation Rate” increased than the Unemployment rate could increase even as number of jobs grew.

Answer 3: It should first be noted that the Stock Market isn’t a reliable measure of the Economy. It ought to be correlated with it, but there are several attributes of the Stock Market that can easily be disconnected from the quality of the Economy. One might only look at the current Corona Virus induced plunge that’s occurring even as the financial experts and non-experts are stating that the Economy is very strong. It’s also possible that as the nature of the underlying factors that both define and constitute a strong economy change and morph over time and social and global conditions. So the Jobs Number Report may not reflect with any precision or even directionality what the status of the Economy’s quality is. The trick here may be to be able to tie the Jobs Number to a predictive causal factor. Only if a longer term predictive trend is made should the direction of the Economy be assessed against that prediction. If the prediction bears out then job numbers are meaningful, if not then they represent something else.

Answer 4: I’m sure there are many different views on this number of jobs. If one considered a ‘keeping pace’ quantity, then I would proffer the following: 190K jobs/month. This number of jobs is simply derived from a statistical assessment of Jobs Report numbers.

Answer 5: The chart shows that the number of jobs added to the Economy is running behind the run-rate and that as of the February 2020 report is 352K jobs below where it ought to have been if it had “Kept Pace”. Thus, if one assumes that the number of jobs reflects the state of or direction of the Economy then it getting worse.

If the expected impact of the Corona Virus turns out to be accurate then the March 2020 Report will cause the Economy to have worsened, and this could become a trend for a few months. Is the Economy getting worse? Before the virus the conventional wisdom was it was improving though there was no recognition that Jobs were falling behind. Now with the virus the outlook is confusing, but sentiment is it will suffer. That also is the conventional wisdom.

It’s not the state of the Economy that’s defining here, it’s simply that a disruption in the normal course of business/commerce will produce uncertainty and panic. The old adage of what drives the market is once again reinforced: Fear and Greed. It goes up because of greed, and it drops because of fear.

This Riddle has run its course. What we learn from it is going to depend upon whether we can start to see beyond the “Fear and Greed” and begin to understand what the Economy is supposed to deliver. If you think it’s a rising Stock Market, or GDP, or Jobs Report than you’re likely stuck in a outdated and out-moded methodology for understanding what drives an Economy.