Stocks and Mortgage Bonds are both lower to start the day after a much stronger than expected Jobs Report...at least on the surface.
BLS Jobs Report
The Bureau of Labor Statistics (BLS) reported that there were 353,000 jobs created in January, which was almost double the 180,000 expected. There were 126,000 in positive revisions to the previous two months added to the strength of the report.
This report is in complete contrast to yesterday’s ADP report, which only showed 107,000 jobs created. But remember we talked about the games that the BLS plays…
January is always a heavily adjustment month, as new benchmarks, seasonal adjustments, and population controls play a big role. The raw job figure showed there were actually 2.635M jobs lost in January, but they seasonally adjusted it higher by 2.988M, which resulted in a job gain of 353,000.
Average hourly earnings, which measures wage pressured inflation, rose 0.6%, which was double expectations. Year over year, average hourly earnings rose from 4.4% to 4.5%, which was hotter than estimates. Interestingly, this is in contrast directionally to ADP, which showed significant declines in wage pressures in the same month…and they look at 10M actual employees and follow their wages through time.
Average weekly hours worked declined again from 34.3 to 34.1, falling to the lowest level since 2010 excluding the pandemic. This is a big deal and is why hourly earnings rose…but people are working less hours but getting paid a bit more per hour…but overall they are taking home less money. This evidenced by Average weekly earnings, which were flat in January and fell from 3.8% to 3% year over year.
It’s important to remember that on average the entire labor force is working 30 minutes less per week compared to January 2023. This is the same thing as losing 2.4M jobs, as you are getting the same output in the economy, there are just more workers working less. It’s another way businesses are cutting costs.
Remember, there are two surveys within the Jobs report, the Business Survey and the Household Survey. The Business Survey is where the headline job creation number comes from the and the Household Survey is where the unemployment rate comes from…And the Household Survey was MUCH weaker than the headline.
The Household Survey has its own job creation component, and it showed 31,000 job losses! You would think this would cause the unemployment rate to rise, however, the labor force decreased by an even greater 175,000. Because of the wrong reasons, the unemployment rate remained at 3.7%, but really should have moved higher. This is the same situation we saw in the December report – The report is getting weaker, but the unemployment rate is not changing because people are not being counted. If you look at the u-6, which is a broader measure of unemployment within the BLS report and does not remove people, the unemployment rate moved higher for the second month in a row. This true unemployment rate has risen from 7% in November, to 7.1% in December, and 7.2% in January.
Looking deeper at the job creations in the household survey – There were 63k full time job losses and 96k new part time workers…making the picture even weaker.
Bottom line – The adjustments play a monster role in this report and there were more games played within the household survey and the unemployment rate. We feared this would happen, which is why we took a cautious approach yesterday.
Next Week
Monday: ISM Services, Senior Loan Officer Survey
Wednesday: Mortgage Apps, 10-yeare Treasury Auction
Thursday: Initial Jobless Claims, 30-year Auction
Technical Analysis
Mortgage Bonds are giving back their gains from yesterday and are now breaking back beneath the 25-day Moving Average. Bonds are now about 14bp above the next floor of support at the 50-day Moving Average.
The 10-year yield has shot back up to 4%, just beneath resistance at the 25-day Moving Average. We think things could get better as the market digests the real reasons why the Jobs Report appeared to strong. After locking yesterday and protecting your pipeline from this downward move in MBS, begin the day floating.
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