If you watch financial television or read any of the influential magazines you know that the stock market trades based on the important economic data. Investors are always looking for signs of what is to come in the economy, and how that will relate to the stock market and its trading pattern. As a financial professional I like to tell people that all economic numbers are important, but not all numbers are equally important. There are some numbers that should take precedence. Which one is the most important of them all? The non-farm payrolls data that is released each month, which is a snapshot of the current employment situation, is the most crucial number of them all. Here is a closer look at why this number is so vital.
Four Reasons the Employment Report is the Most Important Economic Number
1. Consumers are important, and consumers need jobs to spend- Consumers account for about 2/3 of the American economy. Consumer spending is vital to the overall health of the economy. If consumers don’t have jobs, then how can we expect them to spend their hard earned money? In order for the economy to cycle around properly, consumers must have a job and feel secure about their job. In a down job market, consumers are always going to spend less money.
2. We Get a Picture of the Level of Optimism from Corporations- The monthly jobs data gives us our best chance to see just how optimistic and willing to take chances corporations and small businesses are. While many publicly traded companies talk about how they feel about the current state of the economy, I strongly believe that no words are as important as true action. Are they hiring or are they just sitting on their hands?
3. Unemployment is Hazardous to the Economy- I firmly believe that unemployment is the worst enemy of the stock market and the economy as a whole. As unemployment rates rise, consumer confidence tumbles and the economic cycle hits a major snag. If you listen to the local or national news, you know that the unemployment rate is mentioned very often.
4. Other Economic Indicators Take A Backseat- There are plenty of other economic indicators that are important to watch, but if you think about it, you’ll realize that the other data always takes a backseat when the employment data is being reported. This is because every other number is affected by job data. It all starts and ends with jobs!