Understanding Jobs Report Numbers

A common topic when reviewing the country’s economic state is the US Jobs Report. There are many facets covered in these reports, but the main idea is to show the estimated unemployment rate.  Jose Torres, Interactive Brokers’ Senior Economist joins Cassidy Clement, Senior Manager of SEO and Content to discuss.

Summary – Cents of Security Podcasts Ep. 55

The following is a summary of a live audio recording and may contain errors in spelling or grammar. Although IBKR has edited for clarity no material changes have been made.

Cassidy Clement 

Welcome back to the Cents of Security podcast. I’m Cassidy Clement, Senior Manager of SEO and Content and Interactive Brokers. And today I’m your host for our podcast. Our guest is Jose Torres, who is Interactive Brokers Senior Economist.  

So we’re going to cover the common topic of the country’s economic state, which is the US jobs report. Pretty hot topic. So there are many facets that come in these reports, but the main idea is you look to this report to try and address the estimated unemployment rate in the US.  

So we’re going to discuss those data points and where you can find them and then how they impact the everyday investors. So welcome back to the program, Jose. 

Jose Torres 

Thanks a lot, Cass. Great to be here. 

Cassidy Clement 

Yeah, so, I know this, but I don’t know if the listeners know this, but you have a little bit of an industry background with some labor stats. So, why don’t you tell the listeners? 

Jose Torres 

Sure. So I’ve been an economist for about a decade now. And I started my career actually in the Bureau of Labor Statistics. And the jobs report was one of the main statistical products that I was working on.  

And like you said earlier, Cas, the two major points in the jobs report that Wall Street likes to look at are the jobs added, as well as the unemployment rate. 

Now, what’s interesting is that the jobs report is actually made up of two different surveys. The Establishment Survey and the Household Survey. 

So the Establishment Survey is essentially the Bureau sends requests out to businesses to participate in the jobs report program and they’ll typically send a spreadsheet back to the Bureau with the number of employees that they hired, the wages, their average work week, as well as other relevant information. 

And the Household Survey is done by contacting households. So actually, someone might knock on my door right now and I might go check and it might be a Bureau of Labor Statistics employee asking me some economic questions about the household that then gets integrated into the survey and then mass produced into aggregate statistics. 

So the unemployment rate comes from the household survey. The labor force also comes from the household survey, as well as a labor force participation rate.  

The Establishment Survey, the numbers that come from that side are the number of jobs added, the average hourly earnings, so that’s wage growth, which these days is quite significant given that we’re in an inflationary environment. 

Also the average hours worked. That’s also part of the establishment survey, among other statistics. Also, the jobs report reports on many different sectors. Non-farm sector. So agricultural employees aren’t included, but some of the major sectors include trade, transportation and utilities, professional and business services, private education and health care, government, other, financial activities, mining, and a few others, but there’s really 11 major sectors there within the jobs report. 

Cassidy Clement 

So, when we’re talking about this in a little bit more of a one liner or a bullet point lightning round, for these reports, what are they? Who reports them? And then, are they reported routinely?  

Jose Torres 

So actually the Bureau of Labor Statistics reports them. They are reported typically the first Friday of each month. We actually call it “Jobs Friday”. So in some of my former roles, we would tell each other happy Jobs Friday, you know, kind of like happy Friday, because it’s important. 

Most folks in America, the money they spend, which drives corporate revenues and earnings for the S&P, the NASDAQ, the Russell, most of those revenues come from people’s paychecks that they spend. 

So to the extent that many folks are working and the labor force and the number of employees are growing and wages are growing and the employment rate is low, that’s an environment that’s very conducive for continued economic growth. And the unemployment rate has correlated negatively with the GDP. 

GDP is a measure of economic growth. So, when the unemployment rate ticks higher, means that folks that are looking for work or having a tougher time, economic growth drops, right? 

So we have a negative correlation there, and that’s why it’s a pivotal statistic. And because it’s released so early, on the first Friday of each month, so, for example, right now we’re in June, we got that number early in June, so it was one of the first looks of May economic statistics that we were able to see. 

Cassidy Clement 

So, an inverse relationship, kind of. So, you have bond prices to rates, right? That has the same one goes up, the other goes down. That’s the Finance 101 giveaway, if anybody’s listening and studying for that exam this time of year.  

But, you hear about these reports all the time in financial media, journalism, but where exactly do you find these reports, and are they just for the U.S. market, or are there others out there that are accessible from other countries?  

Because usually, I know we’re talking contextually, like we work in the United States, we’re looking at that from that angle, but these types of statistics are very helpful for looking at the economic health of the country. 

So, where can you find them and are they just for the U. S. or are people using other types of stats elsewhere? 

Jose Torres 

So they’re pretty easy to find. Usually with whatever workspace you kind of use, whether it’s a Bloomberg terminal or a Refinitiv or Interactive Brokers newsfeed on the Trader Workstation, right?  

All those kinds of tools are going to have US job growth. If you want to look at specifics, I mean, you just go to the website bls.gov and you’ll have the whole report right there.  

I like to go directly to the report. Because if I start reading the news or reading what this person said or what that person said, remember I’m offering our audience original commentary every single day. So if I’m looking at what so and so wrote and what so and so wrote, all of a sudden I’m clouding my own judgment. 

So at 8:30 am, I’m locked in looking at the report to see what insights I can gather right away. So I’m typically going to bls.gov because I want to see the entire report, the intricacies, and after a while, you know what to look for, you know what page, which report. 

Let me share some common items to look for. So, trucking employment has long been a leading indicator of economic health, right? So sometimes I’ll immediately go over there, see how that’s looking.  

Temp worker demand, right? How many temporary workers were hired? That’s also a huge determinant of how labor demand is progressing, because if temp workers are no longer in demand, it signals that corporate appetite for workers is cooling off. 

Also, there’s a section with discouraged workers. I’m always looking for that.  

In fact, the recent print, we had quite a number of discouraged workers. Folks that pretty much gave up, aren’t working and aren’t looking for work. Even though they’re able to, right? They’re just discouraged. So I look at that. And a lot of other little intricacies to look at as well. 

I might have said part time and full time already. And I just pulled up all the industries just to finish off that list. I think I missed construction, manufacturing, information, and leisure, and hospitality off of that list that I told you earlier in terms of the sectors. 

Just one thing that’s more, a little bit of current events, but also something that I think is important for our audience. 

Recently we’ve had a non-cyclical tilt in employment gains. So most of our gains have come from government, education, and healthcare, right? And that’s not really indicative of a robust economy, right? You’re not adding a lot of jobs in construction, which points to real estate buoyancy, or manufacturing, which points to goods demand, or leisure and hospitality. 

That one hasn’t been too cool, but that points to services spending, and retail points to discretionary spending. So those kinds of dynamics, I think, are really important to consider. 

Cassidy Clement 

Yeah, those items specifically, when you think about it, they’re kind of the pillars of modern society. They keep the engine running, but at the most basic of ways. Your school, your health, some of your government.  

But then once you go outside of that, right, you need the economic stimulus area, which would be those other entities. 

But the ending part of my question with the U. S. employment market. So when we’re looking at these reports, that’s mainly what we’re focusing on.  

But, from a broader perspective, is there anywhere else that you look to or anything else that most financial journalists or media personalities, we could say, go and look for? Because as I stated prior, there’s a larger economic picture that’s being painted from one report. 

Jose Torres 

Absolutely. And this is just one example of going into a question and transitioning into tangents and forgetting what the original question was! 

Cassidy Clement 

It’s all good. 

Jose Torres

There’s a lot here. 

Cassidy Clement 

All good. That’s what the podcast is for. 

Jose Torres  

And we hope that you’re all enjoying it because I’ve learned to enjoy the podcast. My first 15 were just dreadful, but now I’m having fun. 

So international. So one thing, Cassidy, the Canadian jobs report, many times, falls on the same day as the U. S. jobs report. First Friday of every month. Australia has employment statistics, UK has employment statistics, EU has employment statistics, Japan has employment statistics.  

Most developed nations are going to have an unemployment rate and jobs added kind of statistics. Their dates of release aren’t always consistent, but Canada and the U. S., small continent in terms of the number of countries, North America, albeit bigger than Antarctica, right? It’s just really the U.S., Canada and Mexico in North America. So, I guess, Canada and the U. S., they have cultural similarities and stuff like that. 

So for that reason, they kind of aligned the jobs report on the same dates. And I don’t know the exact reason behind that, but I’d guess that it’s something along those lines. 

Cassidy Clement 

So the reason that I’m asking is because anybody who has ever looked at what the American economy has done worldwide, it’s impacted a lot of different areas, whether it’s people from other countries coming to the U. S. to work, or American companies going out to other countries, products being shipped that are American or vice versa, there’s a huge economic impact here. 

So you would think that if you’re looking at, I don’t know, maybe something like banking and you start to see a larger amount of banking employee openings in another country than the U S you might be like, oh, maybe there’s a banking market starting to boom there or something like that, for example. 

But that leads me to my last question of the broader economic spectrum, which is, how do these reports impact the market of the country that they’re applying to? And then the broader market when they go out, when they’re released, I should say. 

Jose Torres 

Sure. So consumption is a huge driver of economic growth. In the U.S., it’s roughly between 2/3 or 70% of our economy, right? So to the extent that folks aren’t working or they’re having an increasing difficulty in attaining employment, all of a sudden they’re spending clout is dampened, right? And that’s true for most of the world. Even in countries where consumption isn’t as high as a share of GDP.  

But still, I mean, even if it’s just 50% or even 40%, you still need folks working if you want the economy to do well.  

Also, in terms of broad economic health, and automation, AI is definitely shifting this, but if a company is going to produce more goods and services, more stuff, that’s how you expand economic growth. 

Traditionally speaking, you need more people to do that, right? Nowadays, we have AI, we have different kind of automation techniques, our economy is less labor intensive than it has been in the past. But still, those traditional parameters of, I need more people to grow, still applies to most businesses in America. 

In fact, 50% of American employees are working for a small business. Most of them don’t have any automation, don’t have any AI. It’s really old school, you know, it’s mom and pop kind of establishments. So that’s really what it’s all about. 

Now, in terms of markets, investor sentiment is based on a central bank beginning to introduce liquidity and relax monetary policy conditions. Then market participants are looking for a weaker number, because a stronger number is going to have a bias towards contributing towards inflation, right? So if the market is worried about inflation, you don’t want a lot of jobs added, right? 

You want a soft number, but if the market is worried about recession and revenue prospects and corporate earnings, then you want a blockbuster number, right? That’s going to drive interest rates higher, drive stocks higher, but to the former case, you want a weak number because that’s going to drop interest rates because you’re worried about inflation. 

You’re not concerned about growth and drive equities higher, right? And that’s traditionally how it goes.  

Lately here in the States, we’ve been craving softer numbers. We’ve been rallying off of softer numbers and being more worried about hotter numbers. 

Cassidy Clement 

You kind of touched on this before in a few different answers. I think one of your earliest answers was something like you would look to construction numbers or something like that on the reports. I believe I know that the go-to thing for inflation was always, if you see the price of milk rise, like inflation is going to start going up across the board. 

So when these numbers come out for people who are the data geeks or the report people, do any numbers or results signal certain things to investors?  

I know you just mentioned some examples there about like, okay, if there’s a higher number of open employment and people are afraid of a recession, that might look a little more hopeful for sentiment. 

Oh, there’s going to be more jobs. It might not be that bad.  

From the general viewpoint, is there anything that can give maybe an example of what some number or result could signal to an investor or the broader market? 

Jose Torres 

I would say broadly, it’s signaling to investors how corporations feel about hiring. What are the labor appetites, right? If the appetite is strong, oh wow, that means corporations are expanding. They’re looking to do more, right?  

Assuming that these workers are efficient, right, and corporations are managing their budgets and their expenses well, then this should drive revenues and earnings higher, right? 

That’s really how they look at it from the fundamental angle. And on the other hand, if companies aren’t hiring, then perhaps their appetites are low. They’re getting prepared for what could be some turbulence on the horizon. And they may be facing margin pressure because maybe their revenues aren’t there. 

So now they’re trying to subdue their costs so that they can deliver earnings. But that can only last so long, right? You can only grow earnings for so long if revenues are under pressure. So, I think I would say those are the two fundamental ways to look at it.  

Now, final point here. On like a sector-by-sector basis, right? 

If you’re a real estate investor, and you’re focused on the home builders, and you’re looking for gauges of real estate activity and you see construction employment is booming, then you can say, okay, this means that added supply is going to come onto the market, right?  

And again, it’s rarely ever that clear cut. 

Construction employment is rising. Wow. This means that there’s so much supply, right? There could be so much noise in the data. There could be so many part-time workers. There could be folks that are working in the construction industry, but aren’t actually doing any physical construction, right? There’s a lot of noise with these things. 

But generally speaking, right, if you’re a real estate investor, you’re focused on construction. If you care more about manufacturing, if you care about more about themes like electrification, electric cars, globalization, shifting to regionalization, nearshoring, onshoring, those kinds of things, then you’re focusing more on manufacturing. 

Last example, if you’re a banker or working in finance or something, then maybe you’re focused more on the financial activities to see how Wall Street is doing, right? If Wall Street is cutting back, whoa, what’s going on? Are we going to have some kind of market correction? 

Why is Wall Street doing this, right? Those are some kind of examples that you can look for. 

Cassidy Clement 

They’re definitely some of the correlations or one to ones, if you will, that would make sense, I think, to a lot of like beginner listeners or beginner investors just to start to tie together some of these pieces because, as you mentioned, there’s a lot of noise that goes into these reports.  

So it’s important to understand the context, what data is going into it, and how broad each of those columns or metrics are, because you’re right, you might look at construction, but the some of them might be office workers. 

They might not be out there on a scaffolding. It could be totally separate from what you believe to be the boots on the ground, if you will.  

But since I know you write for us, you do podcast commentary, all types of stuff, is there any podcasts or commentary that you do routinely for this?I know you do a bunch, so feel free to plug away. 

Jose Torres

Sure. So the first Friday of every month, you’re always going to of expect a jobs report commentary from me. Then the following days, typically Monday or Tuesday, we’re publishing a podcast. Myself alongside the Chief Strategist, Steve Sosnick, hosted typically by the Director of Trading Education, Andrew Wilkinson. 

Sometimes we have some other internal guests join us. In the past, Director of Fixed Income Investments, Joseph Burke has been with us. So, we always do that monthly podcast where we break down the numbers, break down the market reaction. Steve Sosnick hits it more from like an investment and stock perspective, and I hit it more from the economy side, but we do overlap as well because he’s very well versed in the economy. 

And I like stocks and financial assets as well. So, we do a little crossover, but I think it’s great. I think it’s fun. And if you haven’t already, join us. 

Cassidy Clement 

Yeah. I mean, you get best of both worlds then. You get to look at the report and hear somebody try to explain it to you from both angles. And hopefully after listening to this podcast today, you have a little bit more of a foundational understanding to these reports when they come out because they’re always in the headlines. 

I mean, you know, they say America runs on Dunkin.  

It runs on jobs. So everybody is interested in these reports when they come out. That’s why we do podcasts and commentary, et cetera, on it. So thanks so much for joining us, Jose. 

Jose Torres 

My pleasure, Cassidy. I look forward to speaking with you soon. 

Cassidy Clement 

Sure. So as always, listeners can learn more about an array of financial topics for free at interactivebrokers.com and ibkrcampus.com. Follow us on your favorite podcast network and feel free to leave us a rating or review. Thanks for listening, everyone.