Chart of the Week: Economists Try to Predict Payroll Losses

The word of the year may be bailout, but when it comes to the stock market, the operative word for this week is resiliency.

On Tuesday, Wednesday and again on Friday, stocks shrugged off bad news and sharp declines to post solid gains. Yesterday’s feat was perhaps the most impressive of all, after November nonfarm payrolls shocked even the most pessimistic estimates by falling 533,000. Following the release of the employment data, the Dow Jones Industrial Average was down 292 points (3.5%), before putting on a furious 638 point (7.9%) rally and eventually ending the day with a 259 point gain, up 3.1% from Thursday’s close.

This week's chart of the week captures the payroll predictions of the 73 economists surveyed by Bloomberg prior to the release of the employment report. The actual nonfarm payroll number of -533,000 is more than four standard deviations away from the mean prediction and is indicated by the dotted black line to the right. Given that this result triggered a 3.1% rally, one wonders what might have happened to stocks if the employment data had been near the median prediction of a 333,000 loss or perhaps even the more optimistic projections of a loss in the vicinity of 220,000.

Going forward, economic data releases are on the light side until the end of next week, but watching how stocks react to the news flow next week may go a long way toward determining the character of the recent buying activity.

[source: Bloomberg, VIX and More]