It's safe to say that, over the past five years, the non-farm payroll report by the Bureau of Labor Statistics has not been all that important. There isn't a single person on earth that can make heads or tails about the number. Sometimes the unemployment level will decline simply because people fall off the list. Then there's the birth-death ratio, which hardly anyone understands. That ratio is a calculation that takes into account the net number of jobs provided from newly started businesses (births) and business closings (deaths) during a specific period, typically a month in conjunction with the government-sponsored jobs report.
Confused yet? The bottom line is, don't make too much of any one jobs report. Instead, focus on the stock market's reaction to the news.
The Real Driver
Over time, the stock market typically reacts positively to a strong headline number from the jobs report However, for that to happen, other important factors have to occur. These days the major stock indexes move higher on the back of a stronger USD/JPY chart. So it's safe to say that this carry trade is providing a lot of the liquidity for the major stock indexes in the United States, Europe and Japan. In other words, if the USD/JPY declines, it's a safe bet that the major stock indexes will decline as well. Sure, a strong job's number could be a temporary positive catalyst for stocks, but the liquidity in the system is really the driving force.
The job number is also released on a Friday. If you haven't noticed, the stock market rarely sells off on a Friday. Generally, the Friday trading session will finish flat to slightly positive. The Friday trading volume is usually very light and that creates very little selling pressure. Remember, if the economy is going to truly recover it will require consumer spending to take place. If the stock market were to plunge lower on a Friday, who would feel like spending their hard-earned cash come Saturday and Sunday? Remember, the weekend is when most people travel, eat out or even start a project around the house. The central bankers that control the markets know this and will do their best to keep the markets buoyant on any given Friday. After all, consumer spending accounts for roughly 70 percent of the gross domestic product (GDP) in the United States.
Bottom Line
Never put too much into these reports and the numbers. Instead, focus on the reaction of the markets and trade the charts as they'll tell the real story.