Weighing the Week Ahead: Is the Payroll Employment Report Accurate?

It is a big week for economic data. There are many reports with the most attention on Friday’s Employment Situation data.  We will also get auto sales, the ISM manufacturing and non-manufacturing indexes, construction spending, and factory orders. Weekly jobless claims continue to attract great interest and should.  The corporate earnings story hits a peak for the season.

Many have been reassured by the job growth in the payroll employment report.  It is viewed as the most important by the investment and economic communities and has earned a status as the “official” read on employment.  We should be asking:

Is the payroll employment report accurate in these tumultuous times?

The Story in One Chart

I always start my personal review of the week by looking at a great chart.  This week I am featuring Jill Mislinski’s version.  Her chart combines much of what interests us in one picture.

Once again, there was little change in fundamental values or news during the week.

The market gained 1.7% in what looks like a choppy week.  Actually, the trading range was only 1.8%, much lower than recent weeks.  This explains the lower VIX, which you can track in my weekly Indicator Snapshot updates (below).

The weekly sector chart shows the sources of the action.

The “recovery” trade is leveling off even more but remains in “improving” territory. Industrials, financials energy and materials are all part of that group.  Defensive sectors like utilities, consumer, and health, continue to improve.

Personal Note

Last week I indicated that I planned to take the weekend off.  In a sense, that is true.  Instead of weekly news I am writing a more comprehensive story about the payroll employment report.  More soon.


Passed on to me from Twitter by a reader who knew I would love it. I hope you will, too.

The Week Ahead

We would all like to know the direction of the market in advance. Good luck with that! Second best is planning what to look for and how to react.

Briefing.com has a good U.S. economic calendar for the week. Here are the main U.S. releases.

Next Week’s Theme

There is something troubling about the economic data.  There are small reversals in many indicators.  These are often better than economic forecasts.  The most important, and perhaps most suspect, is the payroll employment report.  It is a time of economic tumult.

Is the payroll report still accurate?

I do not think so.  I will devote time to a special report on this important topic.  I have written hundreds of posts on payroll employment, but something is different.  It warrants analysis.

I have a few other conclusions in today’s Final Thought.

Ideas for Investors

I have switched the investor section to a separate post.  I hope to run it nearly every week, calling it Investing for the Long Term.  In the latest edition I show how to interpret the advice of “experts” using my matrix approach. In each case I added a comment about how I might use the idea and also related it to our Great Reset Wisdom of Crowds surveys.  I hope readers will find this valuable and that my colleagues will consider the Great Reset Matrix as part of their selection process.

A Personal Favor

Please consider joining the Great Reset group.  You will get updates about what is being studied and can join in the process.  There is no charge and no obligation, but I hope you will join in my Wisdom of Crowds surveys. I need more wise participants!  The latest survey results are part of my most recent report.  The results of our team effort will be published on a regular basis, so you will be joining me in contributing to a greater good.

We have already identified key sectors to avoid as well as those worth further examination. Articles in financial publications are only now catching up. In the next stage of our research (leading to specific stock ideas) we will go inside the cells of the Matrix to build a watch list.  My last report published a few of these stock ideas (retrofitting buildings), and there will be many more to come.  Eventually I’ll make them part of Seeking Alpha reports, but please join in the process and add your voice in the suggestions. There will also soon be another Wisdom of Crowds survey, helping to gauge the length of the pandemic.  I have created a resource page where you can join my Great Reset group. 

Quant Corner and Risk Analysis

I have a rule for my investment clients.  Think first about your risk.  Only then should you consider possible rewards.  I monitor many quantitative reports and highlight the best methods in this weekly update, featuring the Indicator Snapshot.

For a description of these sources, check here.

Despite the improving technical indicators, I continue my rating of “Bearish” in the overall outlook for long-term investors. We should also keep watch on the increase in anticipated inflation.  So far it has not affected bond prices (Thanks, Chairman Powell) but it eventually will.

The C-Score remains at levels never before seen. It is combining the sharp economic rebound with pandemic effects.  When we are able to separate the two, a current mission of Dr. Dieli, it will provide more guidance on the timing and extent of the recovery.

The Featured Sources:

Bob Dieli:  Business cycle analysis via the “C Score”.

Brian Gilmartin:  All things earnings, for the overall market as well as many individual companies.   This week Brian also takes note of the improvement in corporate credit spreads.

David Moenning: Developer and “keeper” of the Indicator Wall.

Georg Vrba: Business cycle indicator and market timing tools.

Doug Short and Jill Mislinski: Regular updating of an array of indicators, including the very helpful Big Four.

Final Thought

Many of my recent worries are playing out as I feared. The pandemic is getting worse, and many people seem to think they are invulnerable.  While some businesses have reopened on a partial basis, we are far from a complete recovery.  Stock market and economic assumptions seem far too optimistic.  Our political leaders seem not to see the dangers, and important legislation has been stalled.

My data-driven approach still seems reassuring, mostly because of the impact of Fed policy on interest rates and the estimates for forward earnings.

These deserve close attention.  And I have not even gotten to China.

If I could get even a few people to think seriously about this idea, it would make it worthwhile to write this post.  It is very natural to think that your friends and allies believe as you do.  Accepting a different viewpoint is the challenge of cognitive dissonance.  The Wikipedia description is pretty good:

In the field of psychology, cognitive dissonance occurs when a person holds two or more contradictory beliefs, ideas, or values; or participates in an action that goes against one of these three, and experiences psychological stress because of that. According to this theory, when two actions or ideas are not psychologically consistent with each other, people do all in their power to change them until they become consistent.[1] The discomfort is triggered by the person’s belief clashing with new information perceived, wherein they try to find a way to resolve the contradiction to reduce their discomfort.[1][2]

In A Theory of Cognitive Dissonance (1957), Leon Festinger proposed that human beings strive for internal psychological consistency to function mentally in the real world. A person who experiences internal inconsistency tends to become psychologically uncomfortable and is motivated to reduce the cognitive dissonance. They tend to make changes to justify the stressful behavior, either by adding new parts to the cognition causing the psychological dissonance or by avoiding circumstances and contradictory information likely to increase the magnitude of the cognitive dissonance.[2]

It is critical in many personal decisions and risk-taking.

Many people, including some of my friends and loved ones, want to socialize, party, and go to crowded venues.  They feel their admired leaders have endorsed their right to do so.  Suggesting different behavior is almost impossible because it involves concluding that their leader might be wrong about something.

Try this idea:  Take your science advice from scientists and your medical advice from doctors.  Then go vote for whomever you want!

Here is a lame joke that makes the point: An epidemiologist, an ICU doctor, and a scientist walk into a bar…

But they didn’t of course, because they all know better.

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  • Paul in Kansas CIty August 1, 2020  

    Too funny! Looking forward to your payroll report analysis. Stay healthy (and not to hot in Phoenix)my good friend!

  • Quinn August 2, 2020  

    Haha. Some nice laughs in this one. Along with some good thoughts. Also looking forward to the payroll report analysis.

  • James Lodes August 2, 2020  

    Regarding cognitive dissonance, refusal to wear masks and be vaccinated is often linked to the concept of liberty, American values, Constitutional rights, etc. But, to the extent that this propagates the virus, adds to death, sickness and chaos, overwhelms and bankrupts our medical system and destroys our economy and the finances of many of its citizens, do these acts on our part not serve the best interests of countries that we might view as unfriendly, if not enemies?

  • Bill Pitcher August 2, 2020  

    Equally astonishing growth in misinterpretation of misleading charts as well. Crazytown.

  • Yarbles August 2, 2020  

    PLANNEDEMIC is NOT getting worse. Just working its way through the population like any virus, particularly an ENGINEERED VIRUS. Probably on the 3rd round, getting less and less virulent and dangerous. BUT still contagious.

    MSM stoking fear like crazy just like they do in their business reporting.

    Yes, Professor, listen to DOCTORS and NOT PBS, ProPublica, MSNBC, or any other questionable source like YouTube. I look for sources taken DOWN by Google/YouTube.


    • oldprof August 2, 2020  

      Yarbles — You definitely made a weekly contribution of sources I would not otherwise see! I doubt that any of them add much to our investment returns, however.


      • Yarbles August 2, 2020  

        Understanding the TRUTH and even finding WHAT IS THE TRUTH is challenging in today’s age.

        So long as people seek the truth from previously reliable sources such as the NYT AND WaPo, they will be duped and brainwashed into Cognitive Dissonance. This is the plan. A confused person is more easily led into whatever future the Globalist Elite have planned.

        This is no longer Conspiracy Theory. The Elites are no longer hiding their agenda(s).

  • Jay August 2, 2020  

    Your continued focus on data, evidence and critical thinking to reach conclusions and/or make decisions is welcome, needed, and valuable. Keep up the great work!

  • bernie miller August 2, 2020  

    great to see your continued expert writing which i have viewed for many years . playing any bridge ? stay well, enjoy your
    new home,

    • oldprof August 2, 2020  

      Thanks, Bernie. I played a few online games but was discouraged by the rampant cheating. They are working on this, but it is a tough problem.

      (For other readers, Bernie is an expert bridge player who was my partner on a team where we lost in the semi’s of a major championship. We were very close, and Bernie is a great partner and teammate).



  • wkevinw August 2, 2020  

    Excellent joke! I am in agreement. Also- agree on the economic and even financial market data achieving maximum “noise”/outlier status. My indicators are being pretty violently thrashed around.

    Ask a medical provider that has spent years in the infectious respiratory disease (think flu, TB) wing of a hospital whether they wear a mask for both the patients and themselves. I saw such a physician that had recovered from Covid. His mask wasn’t that “fancy” but definitely fit snugly on his face.

    In a recent medical visit, I had a conversation with one of the providers about their masks. They had only one pleat/bend and do not fit at all snugly around the face; but N95 material. They all knew this wasn’t a very good mask, but conforms to regulatory guidelines. This is ridiculous.

    If you can get a high quality mask that fits as “tightly” around your face as practical- that’s the kind to use.

    Again- the Sweden experience seems instructive. They had a lot of hospital resources, and only did basic responses- social distancing, reduced capacity at indoor businesses, and masks. Kids are always in school. They may have achieved herd immunity.

    The lockdowns and even the masks, etc. are likely not reducing the eventual total number or infections; just flattening the curve so the hospitals are not overrun.

    The message needs to be: Do your best not to infect your fellow citizens, while supporting the economy.

  • David Harrer August 2, 2020  

    Here is a lame joke that makes the point: An epidemiologist, an ICU doctor, and a scientist walk into a bar…

    But they didn’t of course, because they all know better.

    I wish the premise of the joke’s punchline….. that all experts were in agreement was true. However, the fact is that you don’t have to look very hard to find two reputable epidemiologists, two ICU doctors or two scientists that have completely different views on the proper approach regarding the virus. We tend to latch onto the ones that we agree with and ignore the others.

  • Kevin August 2, 2020  

    Hi Jeff

    If you don’t already read Steinberg Employment Research’s monthly employment reports (free!), I highly recommend them.

    He also discusses problem in classifying reponses during this time.


    Keep up the great work!

    • oldprof August 6, 2020  

      Thanks, Kevin!

  • EDWARD LUNT August 2, 2020  

    First of all, I am an income investor with a strong bias for dividend income rather than capital appreciation. If I can’t get a reasonable dividend, I move on.
    Beginning with the premise: An effective vaccine that is readily available will make a HUGE difference!
    1. I think that many people are expecting at least one effective vaccine and more effective treatments for Covid-19 by the beginning of 2021, now 4 months away. Premise: substantially reflected in the Stock Market
    2. IMO, the second “wave” we have/are experiencing has done a lot to wake people up to the reality that Covid-19 is going to be around for some time and that it is as infectious as ever. People, especially younger people, are slowly figuring it out, that they can contract the virus and that they can get seriously ill. I see a lot more wearing of face masks and keeping safe distances, especially when visiting areas of the state were wearing face masks was actively rejected until recently. This “wave” appears to have recently “peaked” in many states including my own and we are slowly beginning to figure out how to coexist with the virus. Premise: Substantially reflected in the Stock Market.
    3. Doctors have figured out better ways of treating infections, leading to less loss of life and long term medical problems associated with the Covid-19 infections. Premise: substantially reflected in the Stock Market
    4. The Federal Reserve has taken action to prop up the economy during an extremely perilous few months and appear willing to continue to do so. Premise: reflected in the Financial Markets.
    I think that the stock market has reflected the above in it’s upward move. I also believe that with the promised vaccines/treatments, increases in social responsibility leading to lower infection rates, and the support of the Fed, that the effect of Covid-19 on the markets will continue to decrease. The election will soon become a greater focus of the markets with a focus on the Senate. (A change in who is president and and the House staying as it is I think is extremely likely at this point in time).
    Conclusion: I believe that having an effective vaccine by the first part on 2021, improving treatment, the Second Wave having peaked, people being more socially conscious, and continued actions by Government and the Federal Reserve have largely been priced into the market.

    What I don’t think is at all reflected in the Financial, (both stock and bond), markets is what the effects of the pandemic will be in the long run, especially the effects of:
    1. The fiscal and monetary actions and other stimulants by the FED and by government. While I agree with most of the actions taken, there will still be a cost that will be paid one way or the other.
    2. The effect on budgets of State and Municipal Governments.
    3. The effect on prices of everything. I don’t see anything getting less expensive with most things costing more.
    Conclusion: I can’t see any way that significant inflation won’t be one of the results of the actions taken because of the pandemic although I don’t believe it will be nearly as bad as in the early 70’s.
    Action that I am taking:
    Increasing my purchases of Preferred Stock, some with fixed and others with fixed-to-floating rates with a strong bias towards the latter.

    • oldprof August 6, 2020  

      Edward — Thanks for sharing your analysis. I don’t think Dems taking the Senate will matter much unless they invoke the “nuclear” option, as it is called (Killing the filibuster). The Fed will alter policy as it is able to. But yes, it will be difficult to get through all of this without inflation.


  • Tom K August 2, 2020  

    Jeff — Excellent market analysis, as always.
    I clicked on the Heritage link recommended by Yarbles and actually found it supporting your views. See:https://www.heritage.org/public-health/report/comparative-analysis-policy-approaches-covid-19-around-the-world?
    The Heritage Foundation article clearly shows that the US is in the top tear of nations leading in the death rate per million. We are at the high 400 hundred deaths per 1 million or 0.04%. More prepared nations like Germany or Denmark are at least four times lower, 0.01% or less,. Some say – yes, but Italy is higher than the US. We are the richest country in the world, by far. We have the best science and military infrastructure – why can’t be like Germany or Denmark?
    If we start thinking a little more, beyond the emotional freedom argument, and start realizing the consequences of our actions, we could open the economy much sooner.

  • Pholthau August 2, 2020  

    Let me start by telling you I’ve read your blog for years and it has been consistently been one of the most informative and thought provoking reads on the internet. Your data driven views on the markets for years have been spot on when so many others have focused on much less firm metrics such as “it’s been [insert number of years] of a bull market, we are due for a downturn.”

    It is with this respect and genuine appreciation for your work that I want to suggest that perhaps the experience in Arizona with Covid-19 may be influencing your view of where we in the US are in the course of this epidemic. If you explore some of the writing of Michael Levitt and well as a a growing number of pre-prints on MedRvix.org, there is growing anecdotal evidence to suggest that somewhere in the vicinity of 15-20+% of a population contracting the virus, that the infection rate declines in an often significant fashion (is it herd immunity kicks in at that percentage, is it T cells, is that many are able to fight the virus through similar experience with other coronaviruses?).

    I would not waste a minute arguing with you that our response as a people could have been better or that our leaders (and the world’s leaders) could have been better, but as you have often counseled us dedicated readers – do not think of politics, think of the facts and data. And the data, if you look at Sweden most notably, but other poorer countries that clearly do not have the resources or ability to combat the virus with a vigorous track and trace methodology – suggests a lot of reason for hope. The case counts in these countries spike dramatically and then fall rapidly. Additionally, the CDC data suggests that under 30 the virus is less (to significantly less deadly) than the average seasonal flu. Now, I will admit there is a lot we don’t know yet (for example, will the virus come back each year, etc). But with that admitted as a large unknown, I tender these thoughts to see if you would consider providing a “contrarian” viewpoint in one of your upcoming articles that explores your views on the economy “IF” the US is actually far on its way to achieving a tipping point where the most populous areas (NY, CA, TX, FL, IL) have all achieved a level of infection rate that sends the number of new virus cases rapidly falling.

    If a vaccine for Covid proves as challenging as the search for a vaccine for the common coronavirus cold, “could” it be possible that the US (through providence, luck or perhaps even incompetence) may stumble into being the only large industrialized country in the world that does not have to worry about further outbreaks because its population has achieved a level of national immunity? What would that mean in terms of going forward advantages for the US as it related to getting back to “normal”, allowing tourism, etc.

    I enjoy your thoughts and insight and wonder if you might give some thought to what you think the economy looks like under this contrarian scenario – if only as a thought exercise.

    Keep up the great work!

    • oldprof August 6, 2020  

      Pholthau — I certainly hope that the infection rate declines quickly. I don’t get out much and haven’t lived here long enough to have a lot of local friends, so I do not have much anecdotal information. I will give some thought to your suggestion. Thanks for the encouragement and the ideas.


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