Stock markets jumped in trading today after the Department of Labor announced its monthly nonfarm payroll report. According to the figures, the U.S. added 204,000 jobs in October, which was nearly double the 120,000 jobs economists had expected. Tack on another 60,000 jobs in revisions from previous months, and it looks like a pretty strong month for the economy.
Investors were excited about the numbers, pushing the Dow Jones Industrial Average (DJINDICES:^DJI) 0.77% higher late in trading, while the broader S&P 500 (SNPINDEX:^GSPC) gained 1.04%. On the surface, the reaction seems logical. More jobs means a stronger consumer, which will eventually lead to higher profits in corporate America. But one employment report needs to be put in context.
These numbers are only temporary
October's reported addition of 204,000 jobs is only as accurate as the measurements taken by the Department of Labor, and all we really know is that they're wrong. Deutsche Bank economist Joe LaVorgna found that the average payroll figure is revised up or down by 90,000 jobs by the time it's finalized.
That means the economy likely added somewhere between 114,000 and 294,000 jobs, but it'll take months to figure out which one is right -- and by then the market will have forgotten about October's report.
Every employment report should be taken with a grain of salt because of the inaccuracy in the numbers. That's why buying into a pop in the Dow Jones Industrial Average or S&P 500 because of employment figures is risky.
We know that the specific numbers of the nonfarm payroll report aren't all that accurate, but we can draw some positive trends from this report.
First, according to initial figures, every major industry added jobs last month, with the exception of the federal government. Leisure and hospitality (adding 53,000 jobs), retail (+44,000), professional and technical services (+21,000), manufacturing (+19,000), and health care (+15,000) all showed an increase in employment. Only a 12,000-worker decline in the federal workforce was a drag on results.
The broad improvement in employment was encouraging and shows that the economy as a whole is slowly improving.
What matters in the long term
While it's difficult to draw conclusions about the direction of the economy from a single payroll report, we can paint a picture if we look at trends over the last few years.
You can see below that October's jobs growth was about in line with the average of the past three years, which has resulted in a steadily declining unemployment rate.
At the same time, GDP has grown steadily, even if it's not a fast as we would like. Slowly but surely, the economy and the employment market is healing.
Foolish bottom line
Don't get too worked up about today's employment report, but rather put it into perspective with what we've seen in the past. We didn't see a big jump or drop in jobs in the U.S. during October, and given that the government was shut down for more than half the month, that may be the best news of all.
The bottom line is that in the long term, the economy is growing and employment is improving; they're just both doing so at a pace that's slower than everyone would like.