Measuring The Statistical Insignificance Of The Monthly Jobs Report (December 2007 Edition)

• Tweet

This morning, the Non-Farm Payrolls report showed a net gain of 94,000 jobs in the month of November.  Markets expected 70,000 new jobs created in November so today's data reflects strength in the U.S. economy.

When more people are working, more people are earning money and, therefore, more people are spending money. This tends to propel the economy forward because consumer spending makes up so much of it. 

Already, mortgage markets are responding in a big way to today's report .  Mortgage pricing is off 25 28 91 basis points this morning as money moves away from mortgage bonds and towards the stock markets seek protection from inflation.

But, this movement in money is rooted to investor psychology and not in hard numbers.  From a statistical standpoint, a swift move like we're seeing today just doesn't add up. 

If we compare the expectation of the jobs report and reality of the jobs report, the variance is a drop in the proverbial bucket.  And in the wrong direction, too!

Consider the following (subject to revision in December and January 2008):

• 24,000 more jobs were created in November than was expected
• 4,000 more jobs were created in October than previously measured
• 52,000 fewer jobs were created in September than previously measured

Adding it up, then, today's actual news was that the number of working Americans was lower by a measure of 24,000. 

Now, factor that against the total number of employed people of 153,870,000 and you'll see that, in percentage terms, the "adjustment" represents 0.0156% of the overall workforce.

Let's put that 0.0156% adjustment in mathematical perspective:

• 0.0156 percent is one more foot in elevation for Burnside, Arizona
• 0.0156 percent is one more person living in North Braddock, Pennsylvania
• 0.0156 percent is one more inch in a montrous Bobby Abreu home run

Statistically, 0.0156 percent is insignificant.  And yet, mortgage rates are surging higher today on the Non-Farm Payrolls data.

Just like the last three times (1 2 3) we looked at the jobs report, markets seem to be reacting as just as forcefully because of psychological implications as because of fundamental analysis.