Lions, Tigers, and Bad Headlines, Oh My!

Today the ADP report announced that private industry non-farm payrolls added 91,000 jobs in August, lower than the expected 100,000.

So is this good or bad or neutral?  How is the every day investor to interpret these numbers?  The stock market is up as of 9:36 central time, but didn’t the jobs numbers fall short of expectations? Also out today: The Commerce Department says that factory orders climbed 2.4% in July, the largest increase since March.

Additionally, are there not other employment numbers coming out this week? Which are more accurate? Which data is most important?  We also have to consider: MBA Mortgage Application data, Challenger Gray & Christmas’s layoffs report, Chicago PMI, Consumer Spending, Consumer Sentiment, The Case-Shiller Index, Pending Home Sales, Initial Unemployment Claims, Continuing Unemployment Claims, Revised Productivity numbers, Construction Spending, GDP estimates, GDP revisions, the Philadelphia Fed manufacturing report, etc, etc.

I think you get the point.  As another example, just look at the economic indicators graphs supplied by the New York Fed:

http://www.newyorkfed.org/research/national_economy/nationalindicators.html.


That is 96 graphs!

On top of the raw data the media presents the information in multiple different ways: absolute values, changes month-to-month, changes year-to-year, changes week-to-week.  Primarily they report which ever way suits their agenda which is and always will be to sell newspapers.  Not help you sleep at night.

My Advice: STOP!! Stop reading headlines.  Stop freaking out.  Stop looking at your 401 (k) every 5 minutes.

If you do not have the time to investigate the underlying data and methodologies used to compile the data then do not get caught up in things you may or may not understand. (And trust me; it’s hard to even find a news article that actually has a link to the real report.)  If you did not understand annual weather patterns and decided to buy and sell your wardrobe every 3 months based on the current weather conditions you would make some very poor decisions and wind up with the same wardrobe every year, but for 4 times the cost!

With the amount of data being thrown at you everyday you can only be certain about one thing: being uncertain.  This leads to panic and fear and causes investors to make poor decisions.  Do not think that anyone is immune to this, including myself.  By our nature we are often emotional and irrational.  The best we can do is recognizing these impulses in ourselves and make a conscious effort not to act on them.

History and research, not fear and speculation, reveals that people who invested during uncertain economic times and down markets have ALWAYS come out better on the other side than those who sold during recessions and bought during booms.

I will leave you with this for today.  The graph below is the total private non-farm payrolls since the beginning of 2001.  Unemployment is everyone’s favorite economic indicator.  But the problem is:  IT IS A LAGGING ECONOMIC INDICATOR.  Businesses will not start hiring until the future of the economy is certain.  So if you are in need of a job this is a very important number; however; if you are an investor it is merely one piece of information.  Investing on jobs numbers will almost inevitably cause you to miss the market upswing and repeat the never ending wealth destroying cycle of “buy high and sell low.”

If you just had this one graph to judge the economy on which way would you say we are headed?  It appears we are headed in the right direction, although slower than we would all like.  We all see the future of the economy through a glass, darkly.  Do not bias your lens with too narrow a focus; the world economy is too large for that.  Put on the wide angle lens and give yourself some perspective.  Things are not great; no one argues that.  But do not confuse your investment decisions with the economic situation.  As is documented, and I will attempt to show in the next few blogs, investors who have the ability to tame their innate fear and invest in uncertain economic times reap a financial reward, as well as, peace of mind.  And that will never make the headlines…..