Don’t expect much help reading the economy or the markets or the Fed
The initial weekly claims data for the week ending December 26th showed a seasonally-adjusted increase of 20,000 from the previous week and raised the 4-week moving average by 4,500 to 277,000. The Department of Labor did note the instability of seasonal factors around the holidays. These numbers still suggest a tight labor market as we find ourselves with one of the lowest 4-week moving averages in history, certainly relative to the total labor population.
Reproduced with permission from Doug Short, PhD. Copyright 2015. Advisor Perspectives, Inc.
This coming Friday we will see what happens to the employment numbers for the month of December. More importantly, we will see what happens to hourly earnings and other measures of wages. I have already made the point that one has to take any forecast estimates for 2016 with a grain of salt. One will actually have to take the reported labor numbers for December and January with several grains of salt. “Grain of salt” is an appropriate expression for the labor statistics. The use of Pliny’s phrase regarding a seasoning to reduce the effect of poison or, in modern terms, to imply a bit of skepticism, has to do, for these months, with the seasonal adjustment factors. As the table below shows, the not-seasonally-adjusted numbers in December and January, have historically been negative. January, in particular, has been a big month for layoffs following the holiday season and general corporate timing on staffing decisions. The employment rolls go down by two-and-a-half to three million real people. The sizable negative numbers have typically produced a positive seasonally-adjusted number when the economy is not in free fall. We tend to focus on the seasonally-adjusted number making profound statements about the direction and degree of change. If someone can show me the consistency in the formulae to produce these seasonally-adjusted numbers, particularly given the impact of holidays and weather, I will be happy to remove a few of the grains of salt when discussing the data. As I have said before I have never met a seasonally-adjusted person.
Our focus will be on the wage data as we move through the year. The numbers for December may produce a reinforcement that wages are rising. The year-over-year numbers may have more value than the monthly changes. We believe this will be a focus for the Fed. However, given the issues around first quarter data, among other variables, it will likely lead to no further action on their part until well into the year. This should also be a focus for investors relative to expectations for corporate earnings and, possibly, inflation away from the impact of lower energy prices.
As I said, one has to take all of these numbers with a grain of salt, certainly until we get through what has so far been a mild but disruptively wet winter. We won’t get much help in figuring out what securities to buy from the macro data such as employment. This will be a year when focus on the micro becomes critical. Pay attention.