Nonfarm Preview: A statistical peak at unemployment
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Whilst the general consensus is for unemployment to reach the 6-year lows of 4.9% tomorrow, it can be beneficial to take a broader look at the trend and behaviour of the headline number to help quantify the magnitude a bad number if it arrives.
Today we will focus on US unemployment and tomorrow we will follow up with further analysis on the headline nonfarm employment change. If you missed last month's webinar, then it can be viewed below. Despite being held one month ago the majority of the webinar is still very relevant as it discusses some of the techniques used and provides a broad overview for you to analyse employment data in future.
Over the past 6 years the markets have become quite accustomed to seeing unemployment move lower. Whilst the temptation may be to call a cycle low on the chart above (due to the naturally curvy nature of the long-term swings) we also note the 12-month moving average has served well over the years to signal the majority of major turning points. This becomes more reliable if you allow for 6 months of data to cross above or below the average before confirming the trend has indeed changed. With the unemployment read below the 12-month MA there is no immediate threat to the 6 year decline as of yet.
To assess the data set we have examined the percentage change (MoM) of the unemployment percentage. Please note that this is not the same as simply taking the raw number change between months (which is quoted in the media) as a 0.1 decrease from 10% unemployment is not the same as 0.1 decrease from 5% employment. This allows for a fairer comparison overall to help quantify percentage changes through the entire historical data set.