Today’s Nonfarm Payrolls report disappointed investors and fell far short of even the most conservative estimates on the Street, even worse than our bearish 193,000 call.
With 80 economists making predictions for this report and a standard deviation of 18,000, the smallest standard deviation since 2007, the probability that nonfarm payrolls would increase by just 120,000 is less than 0.0142 per cent.
But that shouldn’t surprise you. Last month Business Insider crunched the data on economist accuracy, and found that 41 per cent of the time the consensus estimate was far from right.
However, last month’s report relied upon final revised data from the Bureau of labour Statistics, which you could argue missed the main impact the headline number had on markets.
Today we look at the first reported change in nonfarm payrolls, before the BLS made any revisions.
What we found: Over the last decade, first reported nonfarm payroll growth and contraction fell outside of 2.58 standard deviations 41.7 per cent of the time. In statistics, 2.58 standard deviations represents a 99 per cent confidence interval.
Statistically, if you accept the notion that the Street’s consensus is correct, a result falling more than 2.58 standard deviations should happen only once every 100 times.
It’s important to note that the estimates do not necessarily fall perfectly under a normal curve. However, the distributions do generally take the bell shape and cluster together centrally around the mean.
Below we present first reported NFP results compared to Bloomberg’s consensus estimate. The meaningful point to look at is the t-test standard deviation, or how far the actual NFP number was from consensus estimates (a line highlighted in blue represents a result outside of the 99 per cent confidence interval).
Photo: Eric Platt/Business Insider