NFP: revisions, URATE, seasonals KEEP higher rate hope alive
"Huge Divide in Employment Data" (Swonk mea culpa?)
A few thoughts to share now that I’m on the FAR SIDE of what is going on in the bond markets in the short-run.
I found myself on the phone @ 830a with a friend (a money manager and former client), staring at bond prices and yields being my very first NFP report without an axe to grind.
I thought the knee-jerk reaction (higher in price then LOWER) was an interesting reminder of how a weak print may prove / reiterate the point of how it CAN be that weak data is perceived to be leading TO a more DOVISH (less hawkish) Fed which in turn is BEARISH for bonds.
DOVISH = bearish / HAWKISH = bullish.
In terms of predictions and rates market VIEWS, I’ll leave that to the professionals as I’m still getting used to this arm-chair QB role and capabilities.
I would note 30yy LEVELS are below those noted earlier on in the week and I’m a firm believer that in price, there is truth. I’m ALSO a firm believer that based on what I’ve seen / heard / read so far, there is still universal belief that no matter WHAT the data, interest rates must go UP. I’ll follow the WEEKLY closing levels noted HERE and cannot help but think of what we’re currently seeing as an Omicron bond stopAthon.
Clubber Lane: Prediction? Pain.
With that in mind, a somewhat LESS THAN SWONKY (750k) NFP print will more than likely NOT deter global Wall Street from it’s post NFP ritual victory lap. I’m not quite sure where this update FROM Diane Swonk fits — mea culpa or victory lap. YOU decide:
Huge Divide in Employment Data
… Bottom Line
The headline on payroll employment should be taken with a grain of salt. The labor market is healing faster than that data suggest. The Federal Reserve will welcome the drop in unemployment and jump in participation in the labor market with open arms. The shortfall in payrolls will not stop the Fed from accelerating the pace of tapering at its December meeting. The Fed is now expected to end its purchases of Treasury bonds and mortgage-backed securities by March, instead of June. That will leave the door open for a liftoff in rates in June.
Fascinating, isn’t it? I don’t miss this sham of a game one bit, tbh. Heads I win, tails you lose? No matter what I said, there’s ALWAYS a grain of salt and / or an economically workbenched visual to help tell the tale. GOAL seeking secured…
One mans opinion. Here are several others of interest. First, HERE is Bloomberg’s TLIVE blog where you’ll find several quick hits, notable quotables, and some visual info graphics done on the fly by Bloomberg reporters. The Terminals report:
U.S. Employment Report for November
U.S. adds 210,000 jobs in November, missing estimates by a wide margin
Unemployment rate falls to 4.2% versus estimates of 4.6%
Weak jobs report puts Fed in tough spot ahead of taper decision
Report suggests divergence between payroll and household surveys
I’ve highlighted DIVERGENCE as the topline print fell far short of the SWONKiest of SWONK estimates BUT the HH survey (what was used to derive a lower URATE and one of the items SWONK focuses on) seemed quite GOOD…
… Remember as always there are two surveys, of employers and households:
Payrolls -- weak today -- come from employers.
Households, the basis for the drop in the unemployment rate, show a strong set of data. There’s an over-1 million increase in the number of people employed.
A major divergence between the two…
Clearly the report was NOT a total loss. The bond markets do not appear to know exactly which aspect to focus on. YET. Here are couple / few OTHER items which MAY be of interest as they pertain TO JOBS report:
BondEconomics.com: Labour Market Tightness
…The latest U.S. labour market data dump was consistent with continued improvement in the labour market, with the broad employment-to-population ratio rising to 59.2% (figure above). That is well above the lows, and returned to the values seen in middle of the last cycle…
Soon AFTER the NFP hit, this one came across
Barclays: Faster taper in December, lift-off in March
Following the November employment report, we think the Fed will view the economy as near full employment. Hence, we expect an accelerated taper at the December meeting, followed by the first rate hike in March. We continue to expect three 25bp hikes in 2022.
Interesting reaction to what looked like a more MIXED data point. Focusing solely on URATE (dropping) so I suppose they are simply marking themselves and their view to the market pricing. The sooner this works its way through the markets, the better, I guess…
BREAN (John Ryding): Payrolls disappointed but the unemployment rate dropped sharply
> Nonfarm payrolls rose 210,000 in November. Though there was an 82,000 net upward revision to job gains in the prior two months, the payroll increase was below expectations.
> Leisure and hospitality jobs rose only 23,000, while professional & business services jobs were up 90,000. Retail employment fell 20,000. By detailed sector, the largest percentage gain was in Scenic & Sightseeing Transportation (+7.1%), while the weakest sector was Sporting Goods, Hobby, Book & Music Stores (-1.8%).
> The unemployment rate fell to 4.2% from 4.6% (3.5% in February 2020), the participation rate rose 0.2% point to 61.8% (63.3% pre-Covid), and the U6 underemployment rate fell to 7.8% from 8.3% (7.0%). Household employment surged 1.1 million in November.
… BOTTOM LINE: Although the headline payroll gain was below expectations, this report in no way should dissuade the Fed from announcing an accelerated pace of tapering on December 15. First, there were again net upward revisions to the prior two months that put the payroll gain plus revision at 292,000. The pattern of upward revisions has been stronger this year than in any other year with the average revision from the first to the third print being 107,000. Second, the unemployment rate plunged to 4.2% despite a rise in labor force participation that resulted in a 594,000 increase in the labor supply (an increase that was disproportionately driven by young people between 20 and 24 years old). Third, the overall seasonal adjustment of November’s payroll change was the largest ever in depressing seasonally adjusted payroll gain relative to the unadjusted gain for any month and November’s negative seasonal factor was larger than any November seasonal on record (by 179,000). The big picture is that job growth is very solid and the labor market continues to tighten on any metric (U3, U6, job openings to unemployment) and we expect the Fed will boost the pace of wind down of bond purchases to $30 billion per month beginning mid-January.
Anything he says / thinks, comes across with that British accent and BoE pedigree SO he’s gotta be right, right? Speaking of ALWAYS RIGHT, this went out TO the muppets,
Goldilocks: Unemployment Falls Sharply in November; Nonfarm Payrolls Miss Expectations
BOTTOM LINE: Nonfarm payrolls rose 210k in November, 340k below consensus. The household survey was significantly stronger however, with 1.1mn job gains—or 1.9mn after adjusting to match the nonfarm payroll methodology. The unemployment rate declined 0.4pp to 4.2% despite rebounding labor force participation. The payroll survey response rate was the lowest for a November in 13 years, and we place more weight than usual on the household survey this month. Average hourly earnings rose at the slowest monthly pace since March, consistent with sequential easing in labor supply constraints. We continue to expect the FOMC to double the pace of tapering at the December meeting and then to deliver the first rate hike in June 2022.
Seems sorta standard fare now. Not much news.
Jefferies: Not As Weak As It Appears As 1mln+ Seemingly Shift To SelfEmployment.
■ November payrolls rose by just 210k, but the miss was mitigated by the household survey which showed a 1.1mln employment increase. Taken at face value, this suggests that over 1mln individuals shifted from employment to self-employment.
■ Historically, the household survey has been more volatile and thus less reliable. But if people are truly shifting from employment to gig work - as many have during the pandemic - then the household survey might actually be paiting a more accurate picture of the labor market because it captures all workers.
■ Reflecting the strength in the household survey, the unemployment rate declined to 4.2%, and is just 0.2% above the FOMC's estimate of the natural rate. The participation rate is finally starting to improve as well. It jumped by 0.2% to 61.8% which is a new post-pandemic high.
■ Bottom line, the labor market is making rapid progress toward full employment and the case for accelerating tapering at the December meeting remains very strong for now.
…The employment-to-population ratio is improving rapidly. While it is still well above the 61.1% level, we believe that is no longer a feasible yardstick for evaluating labor market slack. Population aging makes it very difficult to return to that level. Why? Because 2.7mln individuals have entered retirement age during the pandemic, and employment rates tend to decline drastically at 65, from about 55% to about 20%.
Wells Fargo: November Employment Report: A Tale of Two Surveys
Nonfarm payrolls rose a disappointing 210K in November, with softness spread throughout a number of industries. Average hourly earnings growth also cooled to 0.3% over the month. Yet the household survey indicated that the labor market continues to rapidly tighten. The unemployment rate tumbled to 4.2% even as the labor force participation rate rose and finally broke out of its post-pandemic range. The FOMC will clearly be discussing a faster taper at its upcoming December 15 meeting, but this morning's payroll number and lighter read on average hourly earnings growth gives the Committee an out to perhaps punt to its January meeting.
ING: US economy held back by a lack of willing workers
Headline US jobs numbers were weak, but the details paint a more positive picture. Nonetheless, labour supply simply isn't returning quickly enough and for companies desperate to hire this is a huge problem. The implication is that it constrains growth and pay is bid higher, with those cost increases likely passed onto consumers
There’s sure to be more and **IF** anything newsworthy, I’ll try and post here. For NOW, thought, the bond market PRICING discovery exercise continues to remind ME of those making fight predictions.