Monthly Employment Reports and the Pricing of Firm-Level Earnings News

I use the monthly release of the Employment Situation by the Bureau of Labor Statistics to examine the impact of macroeconomic uncertainty on the pricing of firm-level earnings news. Uncertainty about employment conditions is high the day before the employment report is released and is resolved just after the release of the report. I find a muted initial response to earnings announcements made the day before the employment report. This effect is stronger when ex-ante uncertainty about the contents of the employment report is high. The muted initial response is followed by a stronger-than-usual earnings-return relation measured two days after the earnings announcement, or the day after the release of the employment report. These results are consistent with investors applying less weight to earnings signals when there is high uncertainty about macroeconomic conditions, and increasing the weight applied to these signals after the resolution of macroeconomic uncertainty. Additional results show that earnings announcements made on employment-report Fridays have a muted initial market response followed by greater-than-usual post-earnings-announcement drift, and that the proportion of bad news earnings announcements (negative unexpected earnings) is significantly higher on employment-report Fridays than on other days, including other Fridays.