Morning Report: Strong jobs report

Vital Statistics:

 

Last Change
S&P futures 2701 -2.75
Eurostoxx index 358.09 -0.56
Oil (WTI) 53.82 0.02
10 year government bond yield 2.65%
30 year fixed rate mortgage 4.35%

 

Stocks are flattish after the jobs report. Bonds and MBS are up.

 

Jobs report data dump:

  • Nonfarm payrolls up 304,000
  • Labor force participation rate 63.2%
  • Unemployment rate 4%
  • Average hourly earnings up 3.2% YOY
  • Employment-population ratio 60.7%

Overall, an exceptionally strong report. The uptick in payrolls was almost double the market expectations, and the government shutdown had no appreciable effect (Furloughed employees were counted as “employed” by the survey.  The uptick in wages probably knocked bonds down a touch, but we have been seeing real wage gains in the employment situation report and the employment cost index. Sad trombone for partisans and the business press rooting for a shutdown-depressed report.

 

The unemployment rate has been rising, but that is actually good news as it means more and more of the long-term unemployed are being drawn back into the labor force. The labor force participation rate is a bit of a nebulous number because people who have been unemployed for a long time may not count as unemployed. The employment-population ratio is a much better measure, although you have to deal with demographic noise. The employment-population ratio rose 0.1% to 60.7%. A year ago it was 60.2%. While that is much higher than the 58.5% we saw at the depths of the Great Recession, it is still lower than the 62% – 63% pre-crisis level. Retiring baby boomers are being replaced by Millennials, but there is a lag.

 

employment population ratio

 

New home sales rose to a seasonally-adjusted average of 657,000 in November. The new home sales number is extraordinarily volatile – it is up 17% from October, but down 8% from a year ago – but it is somewhat encouraging as we head into the spring selling season, which despite the polar vortex upon us, unofficially starts about now.

 

Employment compensation costs rose 0.7% in the fourth quarter, as wages and salaries rose 0.6% and benefit costs rose 0.7%. For the prior 12 months, employment compensation costs rose 2.9%, with wages and salaries rising 3.1% and benefit costs rising 2.8%. With core inflation stuck around 2%, we are seeing over 1% real wage growth, which is strong indeed.

 

Wapo published a story about Trump possibly naming erstwhile R politician Herman Cain to the Fed. Cue the snide jokes: Can’t wait for his 3-3-3 plan: 3% Fed funds rate, 3% interest on excess reserves, 3% of QE portfolio runoff per year. In all seriousness though, he ran the Kansas City Fed from 92-96. So what appears at first to be an applause line in fact might not be. That said, these jobs generally go to academics and he is not one.

Author: Brent Nyitray

Why do you need new bands? Everyone knows rock attained perfection in 1974. It's a scientific fact. - Homer Simpson

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