Stocks are at all-time highs, Mortgage Bonds are in rally mode, and the 10-year is down 10bp and approaching 4% after a much weaker than expected BLS Jobs Report!
It’s a beautiful day after the BLS released another report that is indicative of what all of the other data is showing.
BLS Jobs Report
The Bureau of Labor Statistics (BLS) reported that there were only 22,000 jobs created in August, which was much weaker than estimates of 75,000.
The prior two months were revised lower by 21,000, with June being revised to a negative number from 14,000 to -13,000, as we had forecasted. July was revised slightly higher from 73,000 to 79,000, but that figure will get revised again next month. With June now being negative, it breaks a 54 month streak of job gains.
The Birth/Death model added 90,000 jobs on a non-seasonally adjusted basis, but without it, job growth would have likely been negative.
Interestingly, Healthcare and Social Assistance accounted for nearly 47,000 job gains, more than double the entire gain, and an area that showed weakness in the ADP report.
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, and the Household Survey is where the unemployment rate comes from.
The Household Survey showed that there were 288,000 job gains, but it’s a volatile figure and comes after reporting 863,000 job losses in the previous three months. But the labor force increased by 436,000, so there were more people counted. The number of unemployed people increased, and putting the combination together, it caused the unemployment rate to rise from 4.2% to 4.3%, which was expected.
The job gains within the Household Survey were weak ones, because there were 357,000 full-time jobs lost and 597,000 part-time jobs gained.
The average duration of unemployment rose to 24.5 weeks, which is the most since April 2022. And those working part time because they can’t find full time work rose to 1.308M, the 2nd highest since the depths of Covid.
Because of the noise with how they count workers, it’s helpful to look at the U-6 unemployment rate, which is the all-in figure that adds everyone back. The U-6 rose from 7.9% to 8.1%, which is the highest level since in almost four years.
The JOLTS report on Wednesday was very weak, with the V/U ratio or job openings (vacancies) to unemployed persons falling beneath 1 for the first time since February 2018 (excluding Covid). We know the Job Openings figure is overstated because of how they count openings at the state level, and one remote job listed in multiple states results in double, triple, etc. counting. But even taking their figures at face value, there are now more unemployed people than job openings out there.
Average Hourly Earnings rose 0.3%, which was in line with estimates. Year over year, Average Hourly Earnings were reported at 3.7%, which was weaker than the 3.9% in the previous report.
The average workweek was unchanged at 34.2 hours after the July reading was revised lower by one tenth. When combining average hourly earnings and hours worked, take home pay or average weekly earnings, rose 0.3% in August and fell from 3.9% to 3.4% year over year.
After today’s very weak Jobs Report, the odds of a 25bp cut in September are now 100%, with the market pricing in a 75% chance of a 25bp cut in October and 70% chance of a 25bp cut in December. We have been forecasting three 25bp rate cuts this year, and it appears the market is now seeing it that way as well. Of course, as data is released, these odds can change greatly.
And helping those odds was Stephen Miran’s Senate confirmation hearing yesterday, where it does appear he will be confirmed. Once finalized, it is assumed he is someone who will be voting for a cut at each of the next three meetings.
News Next Week
Tuesday: QCEW Jobs Revision Data
Wednesday: Mortgage Apps, Producer Price Index
Thursday: Initial Jobless Claims, Consumer Price Index
Technical Analysis
Mortgage Bonds have busted through resistance and are now moving much higher. There is still about 50bp of room to the upside until the next ceiling of resistance.
The 10-year has broken well below the 4.126% floor and is headed towards the next support level at 4%.
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