The Value of Information

Those of you who know this author know his longstanding opinion of the value of employment numbers. The weekly numbers are next to useless, the four week moving average isn't much better, and the monthly number are subject to wild swings. Certainly, the weekly numbers didn't portend a -4k monthly number yesterday; the consensus was in excess of 100k. Employment numbers consist of a large number of variables and the information is gathered from a large number of sources. The unemployment rate, which was unchanged, is affected by factors like how many people stop looking for work altogether, cheapening its worth.

There are two basic uses for the employment number. The first is the headline factor. Outlying numbers, like the one received yesterday, will drive the markets one way or the other for the short term. It remains to be seen whether this is the beginning of a trend. For those of you that remember back to February 1994 when a 700+k number began an 18-month interest rate rise, that was a case where the headline was the pivot. The current market had already pivoted so this number will probably be just another gallon of fuel to stoke a Fed ease. The second use is more important. The back month revisions downward show a trend, and while the trend isn't likely as bad as the headline number, it is more significant, assuming the revisions themselves aren't revised. The extra time that goes into producing those revisions creates more accuracy, and therefore makes the information more valuable, even though it represents information farther in the past. It is this weakening trend that will push the Fed to lower rates.