A Blockbuster Jobs Number – Establishment vs. Household Surveys
Mortgage bonds are down this morning after a headline release of a blockbuster jobs number way above expectations. It isn’t very clear. Let’s remember there are two reports within the BLS jobs report. There is the Establishment survey, and then there’s the Household survey.
The Household survey gives us the unemployment rate, while the Establishment survey gives us that headline. The Establishment survey has a lot of modeling and includes the birth-death ratio, which measures companies that were born and closed. It tends to lag significantly. Alternatively, the Household survey, which involves reaching out to people in their homes, might not be as accurate because of fewer participants. Nonetheless, this is our most efficient method, so let’s dive into the details of these figures.
Breaking Down the Numbers – The Tale of Two Surveys
First, the Establishment survey revealed 339,000 job creations, well above anyone’s estimate. In addition, we had revisions to the past few months of 93,000. This seems promising, but remember, this is primarily based on models, and the birth-death ratio model alone created 231,000 jobs. If you pulled that out of the equation, the picture would be completely different.
Turning to the Household survey, the picture is quite different. Instead of 339,000 gains, we see 310,000 job losses. Also, the unemployment rate moved from 3.4% to 3.7%. This upward trend from the lowest level of unemployment is often an indicator of an impending recession. So, although the headline seemed strong, we may still need to be in the clear.
The Inflation Component – Earnings and Hours
On a positive note, the market saw a decline in wages or at least a moderation. The average hourly earnings increased by 3/10 month over month, but on a year-over-year basis, they dropped to 4.3% yearly from 4.4%. Average weekly hours worked decreased slightly, equating to about 150,000 job losses. Weekly earnings remained relatively flat month over month, dropping to 3.4% from 3.8% year over year. These signs of declining wages may be positive for the bond market.
Looking Ahead – The Debt Ceiling and Beyond
Fortunately, the Senate has officially passed the debt ceiling bill, which is being sent to the President’s desk. This means the debt ceiling issue will be behind us for the next few years. That’s certainly a piece of positive news. As for the coming week, we’re in for a period with less news activity.
The Charts – Digesting the Numbers
We’re down 19 basis points, which is better than you’d expect with 393,000 job creations. We’re seeing a nice bounce from yesterday. The 10-year treasury is up four basis points and is squeezed between a Fibonacci and the 200-day moving average as the market continues to digest these numbers.
With the jobs number behind us and things not looking so bad based on the headline, the market is showing strength and resilience. It’s volatile, but we’ll continue monitoring it for you.
