Today’s Sept employment report wasn’t good for the bond market and only partially good for the economic outlook. The headline that will echo around the country, the unemployment rate declined frm 8.1% in July and August to 7.8%. Non-farm job growth was about in line with forecasts, +114K; private jobs were thought to be up 130K, as reported up 104K. July and August revisions to non-farm payrolls were revised higher by a total of 86K (+40K in July +46K in August). The average hourly earnings increased 0.3% after being flat in August. The unemployment rate is gathered through phone surveys by the BLS, asking if the respondent is looking for a job, has a job, or isn’t looking anymore, the drop implies more are now working. The household survey showed an 873,000 increase in employment, the biggest since June 1983, excluding the annual Census population adjustments. Some 582,000 Americans took part- time positions because of slack business conditions or those jobs were the only work they could find. The labor participation rate at 63.6% about unchanged from August. The 7.8% matches the January 2009 figure.
Yesterday’s Sept National Federation of Independent Businesses painted a different view, further adding to the confusion on just what is happening in the employment sector. “September was another weak job creation month, owners remain pessimistic about the future and consequently hiring plans remain weak. Reported job creation for the past few months was negative, more workers let go than hired, suggesting a very weak jobs report for September”.
No matter how it is sliced or diced, the employment report is better than what had been expected. The reaction sent the bellwether 10 yr note yield up from 1.67% yesterday to 1.72% at 9:00 and above its 20 and 40 day averages. Mortgage prices declined 25 bp frm yesterday’s close by 9:00. US stock indexes better at 9:00, DJIA up 54; not as strong as we would have expected.
The remainder of the day will trade from the employment report. In Europe, the key stock markets rallied on the US employment report. Europe is still n play but not today as it is all about how markets judge the employment report. A possible bailout for Spain is not imminent, a European Union official said, as concerns grow over the country’s ability to reach its deficit-reduction targets. There’s no guarantee that Prime Minister Rajoy will ask for aid from the EU rescue funds and he’s facing a challenge to deliver the budget-deficit cuts pledged.
Today’s employment data was so far off all estimates that it has already drawn sharp comments. Shock in some quarters; getting too testy: former General Electric Chief Executive Officer Jack Welch accused the Obama administration on Twitter of manipulating today’s employment data for political advantage. “Unbelievable jobs numbers..these Chicago guys will do anything..can’t debate so change numbers.” From my perspective, the headlines were very good, but only 114K new jobs created tends to temper the data.
At 9:30 the DJIA opened up just 50 points, NASDAQ +12, S&P +6; not much considering the headlines, suggesting traders are not completely enamored with the report. The 10 yr note at 1.72% +5 bp and 30 yr MBS price -15 bp after being down 28 bp at 9:00. The 10 yr note high yield was 1.74% at 9:00.
The initial reaction to the data this morning has driven the 10 yr note rate above its 20 and 40 day averages, the 14 day RSI has turned negative. The MBS market, although weaker this morning is holding better technically, on the Fed buying. We don’t make much of the present increases in rates unless it continues on Tuesday (Monday bond and mortgage markets will be closed for Columbus Day—stocks will trade).
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