Independent, Fee-Only Financial Advisor

Independent, Fee-Only Financial Advisor

Friday, September 06, 2019

Working for a Living

Unless you inherited a pile of cash or you’re retired, you need a job to survive. It’s universal. We are all working for a living. The income from our jobs determine our lifestyle— the house where we live, the car we drive, the colleges we send our kids to.

And while Americans are notorious for spending more than they make (via credit cards), we don’t pull out the plastic unless we feel sure about our jobs. The current income from a job, the future income from that job, even possible raises/bonuses, all have an impact on our spending. So any data that tracks our work tells us something about the state of the economy.

The Bureau of Labor and Statistics and the Department of Labor produce data on a schedule which gives guidance to policymakers (and investors). One set of data is published on a weekly basis, and two are done on a monthly basis.

The number of new unemployment claims is reported weekly and comes out each Thursday. Weekly numbers can be very “noisy,” meaning fluctuations from one week to the next are not necessarily meaningful. Trends in data are always important, so we focus on the 4 week moving average for a better picture of conditions.

Weekly unemployment claims increased by 1000 this week, not terrible. The 4 week moving average shows the increase is 1500. Again, not terrible but it shows a trend of increasing unemployment. This is something that bears watching.

Monthly employment numbers are published on the first Friday of each month. BLS produces two reports. One is for the unemployment rate, and this month’s rate remains at 3.7% (very low). This data is calculated through a household survey. For an interesting look at this data over a period of years go to

While the unemployment RATE tends to be the popular one to report on the news, it’s not the one that investors pay attention to. We focus on the number of jobs added in the previous month. It’s done by surveying business and is a more reliable measure of job growth. In August, we added 130,000 jobs.

First, know that we need to add about 150,000 jobs per month just to keep pace with new entrants to the job market. Next, we also look at trends in this data. In 2018, the average number of jobs per month that were created stands at 223,000. For 2019, that number is 156,000. 

The second thing you need to know as an investor is that it’s always about expectations. This month, economists expected the number to be 150,000. It was less and leaves investors with the feeling of disappointment. That often leads to a pullback in markets as we factor in fewer jobs in the future.

Thirdly, because the government is the government and this data MUST be produced on a schedule, previous published data points are often revised. Revisions tell us a lot about the direction of the economy. If you read the full report (and you SHOULD read the full report), you’ll note downward revisions for both June and July.

Finally, there is one other quirk to this month’s number. The report breaks down numbers by industry/employer. Mining jobs are declining, and retail jobs are being gutted. But the federal government added 28,000 jobs in August. Sounds good, right? But 25,000 of those are census hires. We know these are temporary jobs, so expect them to disappear in a future report.

There are some bright spots in this month’s report. Average hourly wages are increasing, and the participation rate is going up, meaning more people who want to work are working. But part-time workers are bumping up, and the number of long-term unemployed is holding steady.

What does this tell us? We are “slowly” slowing down. Eventually, this will translate to a higher unemployment rate. For investors, it means we need to prepare by adjusting portfolios. For consumers, it means we need to pay off those credit cards and build cash to get ready for leaner times in the job market.