Employment numbers for January of 2013 were released on Friday morning, showing that the US private sector added 157,000 non-farm jobs in January, well below the 180,000 jobs expected. This modest disappointment came only two days after an even grimmer surprise, when the fourth-quarter GDP report not only missed the expected target of 1.0% growth, but actually showed that the economy contracted by 0.1%. Still, that's two signs in one week that America's economic recovery, never seen as overly sea-worthy, might well founder before leaving the harbor.
The market responded by rising. The DOW broke 14,000 for the first time since before the 2008 financial crisis, the S&P 500 likewise climbed to levels not seen since before the start of the great recession, and the Russell 2000 pressed upward toward never before seen highs. Such an apparently incongruous reaction is enough to make one wonder if anyone out there is even paying attention.
But for Wall Street, there is never only one way to interpret data, and there is never only one set of “expectations.” Some expectations are issued by analysts—these appear in bold-face type in countless newspapers, periodicals, reports and websites—but there are other, hidden expectations as well. The explanation for this week's market rise probably lies in these hidden expectations, specifically, in the expectation that the numbers will be revised upward, as they have been in the past.
In the case of the GDP, investors remember that only a quarter ago, the initial Q3 2012 GDP estimate was ultimately revised upwards from 2.0% to 2.7%. A 0.7% upward revision would replace estimated Q4 2012 contraction of 0.1% with an expansion of 0.6%. In light of the reduction of military spending that accounted for 1.3% of the decline, the numbers don't look so bad at all.
As for the employment numbers, if one needs evidence that the numbers in Friday's report might be revised upwards, one need look no further than the report itself, which revised Dec 2012's added jobs figure upwards from 155,000 to 196,000, and the November 2012 figure upwards dramatically from 161,000 to 247,000.
What remains to be seen is whether these economic numbers have been revised upwards due to one-time factors, or whether a predictable pattern is emerging. Either way, the reality is that at the present, Wall Street feels justified in shrugging off any potentially bad economic news. Even when the economy does appear to founder, Wall Street continues to cry, “Damn the torpedoes, full speed ahead!”
Julian Close has been a professional business writer since the first day of the twenty-first century, having written for PRA International and the United Nations Department of Peacekeeping. He graduated from Davidson College in 1993 and received a Masters of Teaching degree from Mary Baldwin College in 2011. He became a stockbroker in 1993, but now works for Fresh Brewed Media and uses his powers only for good.