U.S. Employment: Focus On The Trends, Not the Noise

U.S. Employment: Focus On The Trends, Not the Noise


When asked to describe financial markets’ behavior, my first boss had a favorite saying: “when in question, when in doubt, run in circles, scream and shout!”

The past two month’s employment reports from the Bureau of Labor Statistics (BLS) have given the media and the financial markets plenty of opportunity to behave in the manner described above. As an individual or business who is trying to determine how the news affects your financial well-being, it is far more important to focus on the trends and not react to short-term news that may simply be noise.

The graph below shows the monthly data for jobs growth. Although a general pattern can be detected, there is clearly variability in the numbers with sharp spike and drops during some time periods.

Change in Non Farm Payrolls

If you focus on the monthly data, the risk is that you fall into the proverbial trap of being unable to distinguish the forest from the trees. The last two months of jobs data are a perfect example of this. If you had reacted to the abysmal number from last month, without considering the overall trend, you may have made financial decisions that look wrong once you saw this month’s numbers. Responding to the monthly data runs the risk of giving yourself financial whiplash.

By comparison, the chart below shows a rolling 12 month moving average of the data.

Change in Non Farm Payroll 12 Month Moving Average

The rolling 12 month moving average takes out the monthly volatility and gives a better picture of the trend for the data. What becomes clear from the longer-term view is that the pace of jobs growth peaked at the beginning of 2015 and has been slowing since then. This should not be surprising or alarming because we are seven years into the current recovery.

When you should be concerned is when the pace dramatically slows. As you can see from the graph, the pace of jobs growth showed sharp deceleration before each of the last two recessions began. Currently, jobs growth is slowing but has not shown a sharp deceleration.

As I have discussed in previous blog posts, my mantra for understanding the economy is that jobs create income and income is the fuel needed for consumer spending. Since consumer spending still makes up close to 70% of GDP growth, monitoring the trend in jobs growth is important; reacting to the monthly reports is not. Reacting to the monthly results of jobs growth is a strategy for short-term traders and speculators. Focusing on trends is a strategy for individual and businesses trying to make strategic decisions for their long-term financial success.

As the title of this blog posts suggests, you should focus on the trend and not on the noise…unless you enjoy running in circles and screaming and shouting!


The opinions stated in this blog are the opinion of the author and do not necessarily reflect the opinions of senior management at Washington Trust Bank. The information used in this blog was obtained from reliable sources, but we do not guarantee its accuracy. Neither the information nor any opinion expressed constitutes a solicitation for business or a recommendation of the purchase or sale of securities or commodities.


About The Author

Steve Scranton is the Chief Investment Officer and Economist for Washington Trust Bank and is a CFA charter holder with over 30 years of investment experience with equities, tax-exempt and taxable fixed income securities. Steve actively participates on committees within the bank to help design strategies and policies related to client and bank owned investments. Steve also serves as the economist for the Bank and has been a featured speaker for both client and professional organization events throughout the Northwest.