The first Friday of every month is almost always one of shock and awe; the release of the monthly employment data is rarely a calm event. Today the March data didn’t disappoint in terms of surprise. The unemployment rate hit at 7.6% down frm 7.7% in Feb, so far on the surface that looks good, but not really. Non-farm job growth was expected at about 190K, job growth as reported increased just 88K; non-farm private job growth was thought to be about 200K, as reported up just 95K. There was revisions to Feb and Jan jobs that totaled an additional 61K jobs from original reports but the increases were minor in comparison to the very weak employment picture painted today. No matter the spin (assuming we hear it from the Administration) the report was the weakest since last June and the miss in forecasts the worst in over two years. As for the decline in the unemployment rate to 7.6%; adds to the concerns, it indicates an increasing number of discouraged workers no longer looking for jobs.
Why the serious decline in employment data? That will be the topic for discussion through the rest of the day. The initial reaction to the weak data; at 9:00 this morning the 10 yr note rate was at 1.70% down 6 more basis points, 30 yr MBS prices at 9:00 +53 bp frm yesterday. US stock indexes in the futures markets were down, the DJIA -156, S&P -20. At 9:30 the DJIA opened -120 after trading -160 in the futures markets earlier, NASDAQ -55, S&P -18. The 10 yr at 9:30 1.70% -6 bp and now down 16 bp since Wednesday. 30 yr MBS prices at 9:30 +50 bp frm yesterday’s close and up 125 bp since Wednesday.
Two things are contributing to what now appears to be a declining economic outlook. First, the sequester; it is beginning to bite as cuts in spending are now taking a toll on job growth. Congress and the Administration still very dysfunctional, didn’t have the common sense to come to agreement to avoid the automatic cuts that were set in motion in 2011 when the Pres. and Congress couldn’t agree on a budget and instead pushed it down the road. Down the road is now; the cuts have to be made because it’s the law. The second issue, just beginning to have its major negative consequence for job growth, ObamaCare. The health care bill is now beginning to be implemented, with full implementation in 2014. Employers now fully realizing the costs, are going to be less willing to add new hires and will only occur in businesses where it is absolutely necessary. Meanwhile, employers are using temps and driving current employees to increased production. Tempered hiring plans suggest companies are confident in their ability to meet demand with the existing workforce as federal budget cuts cloud the economic outlook. The absence of sustained and bigger gains in employment and earnings underscores the Federal Reserve’s view that more progress is needed before record monetary policy stimulus can be scaled back. Unfortunately the Fed’s QE is having less impact as the easing continues; no significant job growth has occurred, and likely will remain impotent in stimulating the economy.
North Korea remains an irritant; although most all of the recent threats are meaningless in terms of implementation i.e., nuke attacks on S. Korea and the US, nevertheless the belligerence is roiling markets. Today the ‘little general’ of North Korea is telling foreign embassies to consider evacuating their diplomats from the capital as tensions mount with South Korea, warning that embassies can’t be protected in the event of a conflict. In other words, the N.K. regime will not protect embassies---they are on their own. A North Korean Foreign Ministry official met with the Russian Ambassador today to deliver the message. The British Embassy was told today that it won’t be able to guarantee the safety of foreign missions starting April 10 if a conflict flares up, the Foreign Office in London said in an e-mailed statement. Saber rattling continues; no way North Korea has any allies now; it is all about the Little General, Kim Jong Un, trying to act like an adult as he sees it. That said, the world is worried as the escalation in rhetoric grows. One more reason global interest rates are falling; safety moves.
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