Morning Report: Job growth surprises to the upside

Vital Statistics:

S&P futures4,454-15.2
Oil (WTI)92.051.83
10 year government bond yield 1.90%
30 year fixed rate mortgage 3.83%

Stocks are lower this morning as rates rise. Bonds and MBS are down.

There were 467,000 jobs created in January, according to BLS. The unemployment rate ticked up to 4%, and the labor force participation rate rose to 62.2%. Average hourly earnings increased 5.7% YOY. The employment-population ratio rose from 59.5% to 59.7%. The payroll number is surprising given what we saw from ADP (a drop of 200k) so I am not sure which one will prove to be correct. Given the Omicron surge, my gut says that ADP makes more sense and this report will be revised down.

The bond market was clearly leaning the wrong way going into this report, as the 10-year yield rose from 1.82% to 1.9%. Mortgage backed securities are lagging the move a touch, as is typical on big moves in the bond market.

The homeownership rate ticked up slightly to 65.5%, according to the Census Bureau. Median asking rent is on the march higher, which represents rising home prices and record low vacancy rates.

The ISM Services Index declined in January. The Business Activity sub-index dived 8 points, while costs are rising. Labor and materials shortages remain an issue. Some of the comments from respondents include:

  • “Costs have escalated to what we believe are unsustainable levels. Available labor is nonexistent, so we have cut staffing and are taking on fewer projects temporarily in an attempt to reduce cost. Outsourcing where possible. We are not optimistic at this time.” [Construction]
  • “Challenging operating conditions remain the same to start the new year. Our biggest service providers seem to be rebounding from labor shortages or are managing their way through them. We will be forced to upgrade some equipment that is less reliant on labor.” [Agriculture, Forestry, Fishing & Hunting]
  • “Business activity is increasing, but professional labor continues to be in short supply. Virtual work is preferred by clients.” [Finance & Insurance]


Author: Brent Nyitray

In the physical sciences, knowledge is cumulative. In the financial markets, it is cyclical

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