Don’t Believe The Hype

The bond bulls and economic bear crowd is over-hyping the potential for tomorrow’s jobs number to be a game changer.

 
 

This is the last day for stocks this week, and traders don’t seem convinced which way to jump before their long weekend that excludes them from reacting to the jobs report tomorrow. Bond traders still have tomorrow to react and trade, but the flip of the calendar yesterday seemed to renew that same spirit bullish traders had back in January.

On Wednesday, private payroll processor ADP estimated that businesses added 189,000 jobs in March. That is weaker than expected; however, "weaker than expected" does not mean it is weak, as many economist and market pundits have described. Until we got spoiled with the longest string of 200,000-plus monthly job gains in nearly four decades, 189,000 was a very good number.

The United States averaged monthly payroll gains of 175,000 for all of 2011 and 2012 and 190,000 for 2013. The surge to an average that topped 260,000 in 2014 was an aberration — a nice aberration, but still an aberration.

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Economists are looking for a gain on Friday of 240,000 on nonfarm payrolls while traders are looking for less than 200,000. If it is the latter, keep the following in mind:

  • The United States needs no more than 80,000 to 100,000 new jobs per month to stay even. A gain of 175,000 or so would still be very good.
  • Don't believe the hype that a number less than 200,000 will cause the Fed to delay tightening. The Fed has more perspective than day traders, and it knows what constitutes a weak number.
  • Whatever the number is tomorrow, it will be just one month. There's no need to worry until there are three months with average gains declining toward 100,000.

The bond bulls and economic bear crowd is over-hyping the potential for tomorrow’s number to be a game changer. Don’t believe them. A weak number will no doubt cause a big initial market reaction in bonds, but it will fade quickly. If stocks were open tomorrow, I have no idea what traders would do if the number is weak. Stocks should fall, but stocks traders might welcome that for its presumed Fed implications. It’s probably a good thing that traders have a few days to think things over.

Dwight Johnston is the chief economist of the California and Nevada Credit Union Leagues and president of Dwight Johnston Economics. He is the author of a popular commentary site and is a frequent speaker at credit union board planning sessions and industry conferences.

 
 

April 2, 2015


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