A-D Line Foretells Job Openings

Back in 2011, I wrote about Why Even Fundamental Analysts Should Watch A-D Line, noting that the NYSE A-D Line is very strongly correlated to corporate profits. But because the A-D Line can be calculated each day in real time, whereas corporate profits are reported with a significant lag, in effect the A-D Line gives a leading indication for what the profits data will look like once they are released.

The same point applies in this week’s chart, which compares the NYSE A-D Line to the Bureau of Labor Statistics’ measure of U.S. nonfarm job openings. The job openings data are published monthly, and the A-D data is the month-end closing values for our Ratio-Adjusted A-D Line, which factors out the changing numbers of issues traded each day.

Once again the correlation is really strong, but because the job openings data is reported with a lag, we actually get a leading indication. This data series only goes back to December 2000, which is not as far back as the corporate profits data, but still that is enough time to demonstrate the correlation.

And at the upturns from recessionary bottoms, there seems to be an actual leading indication. The A-D Line started upward from its October 2002 low well ahead of the September 2003 bottom for job openings. We saw the same effect in 2009. On a month-end basis, the A-D Line bottomed in February 2009, while the job openings data finally reached its bottom in July 2009.

One might reasonably complain that the recovery in the job openings data has not been as steep as it should have been, or as we needed it to be, and that argument has some merit. But the A-D Line has correctly identified the direction of that movement. And the continuing strength in the A-D statistics portends good things for a continuing jobs recovery. At the point when the A-D Line tops and starts to turn down, it won’t just be investors that will need to start worrying.