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Today’s jobs report showed the lowest job-growth data for the year at 12,000. You would think this would cause the 10-year yield and mortgage rates to go lower. At first, this did happen, but after more digestion of the data, not only did the bond market give up all the early morning gains, but it headed higher for the day, which confused many. So, I will give you my best explanation, but I need to show all the data that came out this week.
Job openings
The job openings data missed estimates and the internals of this report have been getting softer for some time. This is key for the Federal Reserve, and the reason they did a 0.50% basis cut is because they want to start the process of getting rates to neutral. Now, the internals of the data lines, such as the hires and quit percentages, are weaker than the 7.4 million job openings number.
However, in the Fed’s mind, they’re not afraid of a big job-loss recession when the job openings data is still so large, and the economy has been running near 3% GDP for the past two quarters. I believe we had a one-time boost from aircraft spending in the last quarter, which was trying to get ahead of the Boeing strike. That will be a drag in the next quarter.
Jobless claims
Jobless claims data is always the critical data line when talking about the labor market breaking, and not only did it have a good week, but it’s had a good couple of weeks. Let me be clear: this data line will shoot higher when the labor data breaks. Since 2022, I’ve said: we aren’t going to have a job-loss recession — meaning negative growth, many jobs report showing losses, and the Fed benign aggressive with policy — until this data line heads toward 323,000 on the four-week moving average and breaks. We aren’t there yet.
Jobs Friday
From BLS: Total nonfarm payroll employment was essentially unchanged in October (+12,000), and the unemployment rate was unchanged at 4.1 percent, the U.S. Bureau of Labor Statistics reported today. Employment continued to trend up in health care and government. Temporary help services lost jobs. Employment declined in manufacturing due to strike activity.
Excluding the one-time events, the manufacturing data is getting softer and the residential construction sector is at risk with higher rates again, as the housing starts and permits data are at COVID-19 recession levels today. With that said, if you didn’t know the headline number was 12,000 with negative revisions, would the unemployment rate at 4.1% and 4% wage growth change your mind about the state of the labor market? In my view, the bond market is reading ahead of the soft headline print and going to the jobless claims, wage growth and unemployment rate data for now.
Here’s the last 12-, 6- and 3-month averages for payroll jobs data:
- 12-month average: 181,000
- 6-month average: 131,000
- 3-month average: 104,000
If we divide that average by 138,600 per month, we are a bit below my 140,000 level.
To summarize, the labor market is getting softer but not breaking. The critical labor sectors that I focus on when looking at whether we are in an expansion or are going into a recession are residential construction workers and manufacturing employment. The manufacturing data has been softer for three months now, even if I take out the Boeing strike, and the residential construction workers are barely growing.
Now that housing starts and permits are at COVID-19 recession levels, higher rates put that group at risk, as I discussed on CNBC months ago. However, today, to explain the bond market action, think about 4% wage growth, 4.1% unemployment rate, falling jobless claims data and an economy growing above trend. I hope that clears up some of the confusion on why bond yields and mortgage rates aren’t going lower today.
