Jobs Being Drowned by Politics

From golden pagers given as gifts from Israel to US President Trump, to over 60,000 US Civil Service members agreeing to mass layoffs, this week was full of rapid-fire headlines. Between all the politics, we saw a full week of economic news, primarily in employment:

• The week began by seeing delays in planned tariffs to our neighbors to the North and South. It is becoming clear that tariffs are a negotiating tool and may not be implemented as readily as previously feared by many market participants. 
• The Job Openings and Labor Turnovers (JOLTS) report came out on Tuesday with rate-friendly news. 
• ADP’s Employment Report on Wednesday should have been negative for rates but it was overshadowed by some rate-friendly news from the US Treasury. 
• Thursday found an uptick in Initial and Continuing Jobless Claims that caused a nice rally in rates. 
• Finally, Friday found the all-important January Bureau of Labor Statistics (BLS) Jobs Report.

 

Rate-Friendly JOLTS Data

December JOLTS data was released and showed a large drop of 556K job openings to 7.6M. The market was expecting 8M for December, and November’s number was revised lower to 8.156M. The yearly trend has been lower, and we see about a 15% drop year-over-year. This was welcome news for rates.  

As a reminder, the Job Openings number is likely overstated already due to the ability for employees to work from home. This allows employers to advertise one job in multiple markets. This makes it seem like there are multiple job openings when there is only one opening available. Also, some companies could advertise jobs to make it appear they are healthy when they have no intention on filling the job.

 

ADP Employment Report: More Good News for Inflation and Rates 

January’s ADP Employment Report that monitors private-sector employment showed 183,000 jobs were created. This was much stronger than the 150,000 that was expected.  December was also revised higher.

An important component of this report examines wages. This was a silver lining for the rate market as it showed wages only increasing slightly. This is good news for inflation and rates.  

 

US Treasury: Keeping Auction Sizes Stable

Causing a mini rally in rates was the US Treasury’s release of their quarterly refunding announcement. This shows how much debt will need to be issued to keep the US government operational. The size of the auctions of US debt is important for the supply vs. demand balance. If the US Treasury increases the amount of their auctions, that would drive the price of the debt down and increase rates.

They came out and stated that they are going to keep the auction size stable for at least the next several quarters. This was great news for the supply-side of the market.

 

Initial & Continuing Jobless Claims: On the Rise

Initial Jobless Claims rose again by 11K to 219K, slightly higher than expectations. Continuing Claims rose 36K to 1.886M. These numbers point to the difficulty people may face in getting a job once they lose theirs.

 

January BLS Jobs Report: What You Need to Know

The much-anticipated January BLS Jobs report came out of Friday. As a reminder, there are two different surveys in this report: 

1. The Business/Establishment Survey that uses business responses and modeling called the Birth/Death Model to determine the number of jobs created.  
   
2. The Household Survey that calls more than 60K households to see their employment status and determines the Unemployment Rate. 

 

Recap: The Business Survey 

The Business Survey showed that 143K jobs were created while the market was expecting 170K. What is interesting about this number is that it is seasonally adjusted.

• Seasonal Adjustments are normal in statistics to make sure there aren’t large swings in changes from month to month due to things like holiday surges in hiring followed by firing.
• This month saw the raw, unadjusted number come in at 2.852M jobs LOST. This is a massive swing from non-seasonally adjusted losses to seasonally adjusted job gains. 

One item in the Business Survey that rates didn’t like was an increase in Average Hourly Earnings from 3.9% to 4.1% YoY. Any time earnings increase, this could lead to wage growth inflation and be bad for rates.

The market didn’t seem to notice though that the Hours Worked metric declined from 34.3, in December’s report, to 34.1 hours weekly in January. 

This might not seem like a big drop but when applied to all workers in the US, it equates to about 960K jobs lost. While the amount a person gets paid per hour could go up, if the hours they work goes down, they will net less actual income.

 

Recap: The Household Survey

The Household Survey showed a whopping 2.234M jobs created in January. Is that correct? Well…no. 

Every year the BLS takes data from the US Census to add new participants to the US Labor Force. They extrapolate the number of those people who are employed. Instead of doing this every month, they do it at the beginning of every year. That is why the number is so large. The extrapolation and large addition do make it challenging to have accurate Unemployment Rate results. This month showed the rate falling from 4.1% to 4.0%.

 

Barry Habib: Upward Bias and BLS Surveys

MBS Highway’s Barry Habib made an interesting argument for why the BLS has an upward bias on their surveys:

The Business Survey:

• Firms that go out of business don’t respond.
• Larger businesses are more likely to have someone who routinely answers questions. Larger businesses usually show more job growth stability than medium and small businesses.
• Businesses have better things to do than answer BLS surveys.
• Businesses that are doing well are more likely to answer than businesses that are struggling or understaffed.

The Household Survey:

• Documenting the employment status of undocumented individuals is virtually impossible. They aren’t likely to answer the phone, and if they do, will they say they are not working?

Looking Ahead

 

Next week finds us with the important Consumer Price Index (CPI) and Producer Price Index (PPI) inflation reports:

Tuesday, February 11: 

• NFIB Small Business Optimism Index
• Fed Chairman Powell’s Semiannual Testimony to Congress

Wednesday, February 12: 

• Consumer Price Index (CPI)
• 10-Year Treasury Auction
• Day 2 of Powell’s Testimony to Congress

Thursday, February 13: 

• Producer Price Index (PPI)
• Initial Jobless Claims Report
• 30-Year Treasury Auction

Friday, February 14: 

• Retail Sales Report

The Bottom Line

We are hopeful for some rate positive news from next week’s inflation reports. It could be a very important week.