NFP: Outliers Are Where Investing Risks Lay

Posted by Barry Ritholtz - The Big Picture

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Today we find out just how seasonal those 200,000 new jobs were in December 2011. Consensus is for employment to grow by 140,000 — about par with population growth. Unemployment is expected to be unchanged at 8.5%.

As I am so fond of writing, no single month’s NFP matters all that much — focus on the overall trend to see what is significant. By way of the two charts below, the major overall trends have been improving. New Jobless claims have been ticking downwards since May of 2011. (Benchmark updates could be significant also).

We have seen a variety of retail sales disappointments — notably, (AMZN) and Ambercrombie & Fitch (ANF). Without more hiring and wage gains, higher consumer spending is going to be a difficult challenge to meet.

From a trading perspective, weakness would be problematic. With earnings slowing, the aforementioned soft retail, and the markets as overbought as they have been in a few months, the bulls don’t really need a weak number today.

From an investing standpoint, the outliers are where the risks lay: Too strong number (rather unexpected) might increase pressure on the Fed to end Operation twist and postpone QE3. A too weak number raises the possibility of a recession — currently thought of as not likely amongst most economists. A few observers — ECRI, Hussman, Rosenberg, Shilling, Faber, Rogers — think a recession is highly likely (For the record, I am still at 50-60% chance of recession, but willing to take that lower if the mixed data improves).

Hence, your reaction to today’s numbers should be a function of your positioning, holdings, timeline, and your risk management.

Employment situation report released at 8:30am



About Barry Ritholtz of the Big Picture

Barry L. Ritholtz is one of the few strategists who saw the the coming housing implosion and derivative mess far in advance. Ritholtz issued warnings about the market collapse and recession in time for his clients and readers to seek safe harbor.

Dow Jones Market Talk noted that “many market observers predict tops and bottoms, but few successfully get their timing right. Jeremy Grantham and Barry Ritholtz sit in the latter category…” For the prescience of his market calls in 2009, he was named Yahoo Tech Ticker’s Guest of the Year. (A summary of major market calls can be found here) His observations are unique in that they are the result of both quantitative data AND behavioral economics.

In 2010, Barry L. Ritholtz was named one of the “15 Most Important Economic Journalists” in the United States. Ritholtz writes a column on Investing for The Washington Post (His WaPo columns are here); he also contributes occasional column to Barron’s and Bloomberg (See The Myth of Uncertainty). Previously, he authored the popular “Apprenticed Investor” columns at, a series geared towards educating novice and intermediate investors. Mr. Ritholtz has published more formal market analyses at Wall Street Journal, Barron’s, The Economist, and