Measuring The Statistical Insignificance of the Monthly Jobs Report

The economy shed another 80,000 jobs in March 2008, according to this morning's Non-Farm Payrolls report, and was 60% more than the initial estimate of 50,000.

Add that to the revised January and February losses of 76,000 each and it appears that Fed Chairman Ben Bernanke was spot on when he said that the economy likely contracted in the first quarter of 2008.

But, weak employment data today means that consumer spending should suffer later this year and less consumer spending makes rate-cut-fueled inflation less likely.

That is spelling good news for mortgage shoppers today as rates are down about 0.125% from market open.

But should they be?

Mortgage rates are a prediction of the future and news about the economy -- positive or negative -- is always "baked into the cake" well in advance of the news actually happening.
In stock broker parlance, it's "buy on the rumor, sell on the news".

In mortgage bond circles, it means that expectation-meeting data will not change rates. When expectations are wrong, however, rates can move a lot.

So, let's compare the expectation of the March jobs report to the reality of the jobs report. What we'll find is that the variance is a drop in the proverbial ocean.

Consider the following (subject to revision in April and May 2008):
30,000 fewer jobs were created in March 2008 than was expected
67,000 fewer jobs were created in January and February 2008 than previously reported.

Adding it up, today's news is that the economy is 97,000 working Americans weaker than expected.

But the real story is that 97,000 workers is a statistical nothing. It's less than nothing. It's the depth of the Phillies middle relief corps nothing.

Put 97,000 against the total work force of 153,784,000 and, in percentage terms, it's 0.063% of the overall workforce. That's tiny.

Let's put that 0.063% into perspective:
0.0063 percent is one more player in this NFL strike
0.0063 percent is one more step from Stagecoach Museum to Niobara County Fairgrounds
0.0063 percent is one more person in this Colorado brewtown.

Statistically, 0.0063 percent is insignificant. And yet, mortgage rates are falling on the news. If you're buying a home this weekend, that's good news for you.