On the first Friday of every month the U.S. Government releases the latest jobs figures. Once the figures are released different parties spin the data to support their own figures that signal either contraction or expansion. The month release of job numbers has always garnered front page news in financial market media outlets, but since the FED began discussion on tapering QE purchases the release of jobs data has become mainstream. However, the media blitz that follows the initial release doesn’t accompany the continual revision period.
The revision period scrubs initial numbers for meaningful data such as wages, job types, and workforce size. These data points cannot independently predict the direction of the economy, but by analyzing trends in this manner the FED is able to formulate a policy that, given the assumptions, will stimulate sustainable growth. While a decline in the unemployment rate from 7.3% to 7.0% in November might sound good and lead to speculation over FED tapering when released, the thought might be different after adjusting to changes in the size of the workforce.
On simple level, the unemployment rate is fraction of people counted in the available workforce. The available workforce includes individuals that are either employed or actively seeking employment. If someone who would otherwise be counted in the available workforce gives up on finding employment they are then removed from the workforce and not counted as unemployed.
A similar conundrum exists for individuals seeking full time employment that settle for part time work. These individuals are not removed from the workforce but are counted as employed although their skills are not being used in the most efficient manner. The combination and difficulty in judging un/underemployment is one reason why many believe labor statistics should focus more on wages levels than job numbers.
Economic studies have proven that more highly compensated individuals add significantly more to the GDP then their lower earning counter parts. For example: five individuals working full time and earning $100,000 will contribute more to economic growth than twenty people earning $25,000. This is simply because the higher income earners outsource more daily tasks and purchase larger budget items than others can.
In an economy that is driven by roughly 70% consumer spending an increase in wage levels is a decent signal to combine with other figures when determining when and by how much to taper QE. Of course, similar to how we build portfolios it is best practice to look at a diverse range of statistics and trends before implementing any policy changes.