| BUSINESSWEEK ONLINE : AUGUST 9, 1999 ISSUE | ||||||||
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| BUSINESSWEEK INVESTOR
The Employment Report: A Market-Rocking Day How it can unleash a frenzy For Wall Street, labor day comes the first Friday of every month, when the Labor Dept. releases a treasure trove of job-related data called the employment report. Unlike the lazy national holiday in early September, though, Wall Street's labor days are marked by a frenzy of buying and selling. With rare exceptions, stocks are most volatile immediately after the job numbers are released. Goldman Sachs Senior Economist Edward McKelvey calls the monthly statistics ''the undisputed champions of price movements'' in the equity markets. And the employment report's effect on the bond market is equally great. If you want a sense of what's going on in the economy and the labor markets, ignore the report's most widely reported stat--the unemployment rate. It's a lagging indicator that only tells us where the economy has been. Instead, focus on the change in nonfarm payrolls, hours worked, and hourly pay. These numbers will tell if the economy is speeding up or slowing down, and whether wage pressures may be a cost problem for companies whose stock you own. The employment report is composed of the Current Population Survey and Current Employment Statistics--commonly referred to as the household and payroll surveys. The household survey, based on interviews at 60,000 residences, figures the unemployment rate, or the percentage of jobless people in the labor force. PAYROLL POWER. But while that rate often makes headlines, stocks are more vulnerable to news from the payroll survey. It collects data on jobs, hourly wages, and the number of hours in the workweek from about 400,000 companies covering nearly 500 industries. The total change in payrolls reflect shifts in economic activity. A big gain means companies are hiring in response to rising sales. A job decline hints that companies have so little business they must let people go. Wall Street also examines separate industry data to see what is happening in different sectors. For instance, a drop in hours worked in retailing suggests that consumers weren't shopping all that much. Retail stocks could then take a hit. The employment report also affects interest rates because excessive economic growth typically spawns inflation fears. Using data from 1985 to 1996, Alan Krueger, an economics professor at Princeton University, found that if payrolls jumped 200,000 more than expected, the yield on the 30-year Treasury bond rose 7.6 basis points that day, the one-year rate rose 14 points, and the three-month rate edged up 9.4 points. Higher interest rates often have a negative impact on stocks. Because the employment report can move the markets sharply, the Labor Dept. gives a copy to the head of the Council of Economic Advisers on the afternoon before the Friday release. Federal Reserve Chairman Alan Greenspan receives it that evening. But Labor Secretary Alexis Herman doesn't get the report until Friday's ''lockup'' period, the half hour before the official release time, when financial journalists huddle in a room at the Labor Dept. in Washington to look over the numbers and prepare their stories. At 8:30 a.m. promptly, the news reaches the public, usually touching off a fury of stock-market activity. So if you prefer to trade on days when the markets are quiet, better treat the hectic first Friday of the month like Labor Day and take the day off. This is the second in an occasional series of stories explaining how major pieces of economic data can affect the stock and bond markets. BY KATHLEEN MADIGAN _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ BACK TO TOP |
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