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Why the Employment Situation Report is an important investor tool

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The “Employment Situation Report”

The US Bureau of Labor Statistics puts out the “Employment Situation Report.” It contains all sorts of important data points regarding the state of the labor market, from payroll data to the unemployment rate, the labor force participation rate, average hourly earnings, average weekly hours, and other key points.

These data are also broken down by demographics, making this report an important tool for investors. Check out the end of the report, where you’ll find links to all sorts of tables and historical data.

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The establishment and household surveys

The “Employment Situation Report” is based on data from the following two surveys:

  1. the Current Population Survey, also known as the household survey
  2. the Current Employment Statistics Survey, also known as the establishment survey

The household survey provides information on the labor force, employment, and unemployment. The establishment survey covers employment, hours, earnings, and payrolls. The household survey covers the entire non-institutionalized civilian population, while the establishment survey covers people working in the private sector or government.

Payroll data

In February, payrolls increased by 295,000, well in excess of Wall Street expectations of 235,000. The ADP survey, prepared by ADP, LLC, predicted the number would come in at 212,000. Investors should remember the ADP numbers are meant to forecast the final payroll number, not the advance number

Private payrolls increased by 288,000, while manufacturing payrolls rose by 8,000. Private services payrolls increased by 259,000. Government employment increased by 7,000 jobs.

Implications for mortgage REITs

Mortgage REITs such as Annaly Capital (NLY), American Capital Agency (AGNC), and MFA Financial (MFA) are driven primarily by interest rates, and mortgage REIT investors need to watch the Fed. The Fed has a dual mandate to maximize employment and to control inflation. Ever since the Great Recession began, the Fed has had to contend with a lot of slack in the labor market, and an inflation rate that is below their 2% target. As payroll growth picks up, the slack in the labor market is getting taken out. However, as long as inflation remains below 2%, the Fed will want to keep rates as low as it can.

Investors who are interested in trading the mortgage REIT sector as a whole should look at the iShares Mortgage Real Estate ETF (REM). Investors who are interested in making directional bets on interest rates should look at the iShares 20-year bond fund (TLT).

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