predicting economic data points

7 Jan

As usual, they got it wrong. According to the Wall Street Journal, economists in Dow Jones Newswires’ survey had forecast payrolls would rise by 150,000 and the jobless rate would fall to 9.5%. The actual numbers came in at 103,000 and 9.4%, respectively, meaning they were off the actual number by nearly one-third. In typical fashion, CNBC spent most of the morning speculating about the release. The repartee between two folks is classic “time filling” television when the number is only an hour or so from release.

This offers a case in point on why it’s best to ignore prognosticators, especially on metrics like jobs. These numbers may move one way or another, but there is no point in trying to trade on such information because we can’t know beforehand. Forecasters tend to be within a tight range of each other, so when there are big numbers they are just as surprised as the markets might be.

Of the 103,000 jobs created (statistically, at a 90% level of confidence) this month, 113,000 of them were private. About half the decline in the rate was due to folks leaving the labor force, the other half was actually increases in payrolls. Service-providing industries were by far the largest area that saw job creation, up 115,000. We can quibble over 10 or 20 basis point down tick in the headline number, but 16.7% is the number on which to focus. This is the so-called U-6, and it represents unemployed but also those who are working part time but want full-time work. Thus, it’s more comprehensive.

To get back to the point: it’s mostly pointless to focus on predictions, which tend to introduce noise into an investment process. Remember this the next time economic data is close to release and the media fills time with speculation.

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