EL-ERIAN: The Jobs Report Is Having A Diminishing Role As A Market-Mover
"Certainly, the fanfare around this data release will not end," writes Mohamed El-Erian, outgoing Co-CIO of PIMCO, in the Financial Times. ""Employment Friday" will remain - at least for a while - one of the most widely followed data releases, not only nationally but also internationally. Yet, unless analysts get their forecasts really wrong, we should expect the report as a standalone to have a diminishing role as a notable mover of asset prices and policies."
The unemployment rate in particular has been used as a gauge for the health of the U.S. economy. It's also been scrutinized for clues on the Federal Reserve's next moves regarding its monetary policy.
But other factors feed into the declining unemployment rate. For instance, a drop in the labor participation rate, which reflects many have just stopped looking for jobs, has often been blamed for distorting the unemployment rate in a favorable way.
This is why El-Erian writes that the unemployment rate "is now a less effective predictor of policy changes." But he adds that there are two other reasons the unemployment rate has diminishing value as well. From the FT:
"First, Fed policy has been placed largely on autopilot. Consistent with Fed signals, we should expect a regular "measured reduction" in asset purchases at forthcoming policy meetings so that the institution is out of the quantitative easing business by the end of the year. Indeed, only major turbulence at home would prompt the Fed to override this autopilot course.
"Second, and now that the economic recovery appears better entrenched, officials have greater flexibility to consider the potential negative consequences of prolonged reliance on experimental policies, including the impact on asset prices, the functioning of markets and asset allocations."
El-Erian thinks the Fed will now move towards watching inflation and "other real economy indicators." While the jobs report will still get some press he expects it will play a smaller role in moving markets and policy.