Morning Report: Strong Jobs Report

Vital Statistics:

S&P futures4,147-44.75
Oil (WTI)75.65-0.11
10 year government bond yield 3.49%
30 year fixed rate mortgage 5.98%

Stocks are lower after the strong jobs report. Bonds and MBS are down

The economy added 517,000 jobs in January, which was way above expectations, while the unemployment rate inched down to 3.4%. The labor force participation rate the employment-population ratios were unchanged and remain below pre-pandemic levels. November and December payrolls were adjusted upward by 71,000.

Leisure and hospitality added the most jobs (+128,000) however employment in this sector remains below pre-pandemic levels. Professional and business services and health care were also big contributors to job growth. Average hourly earnings rose 0.3% month-over-month and 4.4% year-over-year.

The growth rate in average hourly earnings is declining, however we are still above pre-pandemic levels.

Needless to say, this report will be too strong for the Fed’s liking. This explains the reaction of stocks and bonds to the report. The Fed wants to cool the labor market and so far it hasn’t gained any traction. The unemployment rate has broken below pre-pandemic levels and is now back at the lowest in over 50 years.

PennyMac Financial Services reported that origination volumes in the fourth quarter were $23 billion, down 12% from Q3 and 41% from a year ago. For the year, PFSI originated $109 billion, which was down 54% compared to 2021. In terms of profitability, servicing carried the load, offsetting the losses in the production segment.

Production margins fell to 55 basis points from 99 in Q3 and 119 basis points a year ago. The decline in margins was driven primarily by origination mix – consumer direct fell dramatically while correspondent remained stable. Delinquency rates ticked up again, but remain below pre-pandemic levels.

The ISM Services Index rebounded in January after contracting in December.“Business Survey Committee respondents indicated that capacity and logistics performance continue to improve. Although responses varied by industry and company, the majority of panelists indicated that business is trending in a positive direction. Employment was unchanged for the month. Some companies still find it difficult to fill open positions, while others are facilitating staff reductions.”

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Author: Brent Nyitray

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

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