JOBS REPORT SUMMARY WITH MARKET REACTION
Non-farm payrolls didn’t contain any huge surprises this morning as total payrolls came in below expectations at 162k. The unemployment rate was steady at 9.7% and the U6 unemployment rose to 16.9% All in all, the report appears to be of the “ugly Goldilocks” sort – not too hot and not too cold, but just ugly enough under the surface to keep the liquidity pumps fully primed. This might have been the most highly forecast piece of data in the history of the market, but managed to surprise nonetheless. Stock futures rallied modestly on the news, but the dollar is soaring 0.7% against the Euro so action on Monday could be mixed to positive.
There were some definite positives in this morning’s report. The big jump in overall jobs was impacted less by the Census hiring than many presumed. Census hiring was only 48K in this report which implies that private sector job growth was stronger than many assumed (most analysts assumed 100K+ Census hiring). This means the Census hiring will bolster the next few reports substantially. January and February payroll reports were also revised higher with January tacking on 40K (from-26k tK +14K) and February tacking on 22K (from -36K to -14K). Despite the positives, the overwhelming negative is the continuing high level of unemployment on Main Street with U6 at 16.9% and the headline figure at 9.7%. This report is a start, but barely puts a dent in the job losses we’ve seen over the preceding 24 months.
Markets reacted very predictably to the news. Equities initially declined on the headline, but were then bolstered by news of worse than expected Census hiring which implies better than expected private sector job expansion. Bond and currency markets also read the report as being a sign of a stronger economy in the months ahead. By the end of the session S&P futures had added 4.25 points or 0.36%.
(S&P 500 Futures)
The rally in the dollar (up 0.7% vs the Euro) implies that the U.S. economy is getting stronger. Unfortunately, it also implies that Fed rate hikes are closer than many might think. The sharp move higher in the dollar is going to offset some of the move higher in equities as commodities will likely trader lower on Monday.
(EUR/USD)
And for those wondering – the trading gift that keeps on giving is likely to continue Monday morning. The Monday morning melt-up is alive and well. This will make it 22 of 25 Mondays of late. Not too shabby.
The full statement by Keith Hall, Commissioner of the BLS is attached:
“Nonfarm payroll employment rose by 162,000 in March, and the unemployment rate was 9.7 percent for the third month in a row. Job gains continued in temporary help services and in health care, while job losses occurred in financial activities and in information. The March employment increase also included 48,000 workers hired by the federal government for Census 2010.
Temporary help services employment increased by 40,000 in March. Since last September, employment in this industry has grown by 313,000, or 18 percent. Health care added 27,000 jobs in March, compared with an average monthly gain of 18,000 over the prior 12 months. Mining employment rose by 8,000 in March. This industry has added 31,000 jobs since last October.
Federal government employment rose over the month, reflecting ramped-up hiring for Census 2010. In March, the Census Bureau brought on 48,000 temporary workers. Employment in state and local governments was essentially unchanged.
Manufacturing employment continued to trend up in March. Over the last 3 months, manufacturing has added 45,000 jobs, with most of the gains in durable goods industries. Construction employment held steady in March. This industry had shed an average of 72,000 jobs per month in the prior 12 months. Employment continued to decline in financial activities (-21,000) and in information (-12,000) in March. Other major industries showed little change in employment.
Average hourly earnings of all employees in the private sector declined by 2 cents in March to $22.47. Over the past 12 months, average hourly earnings have increased by 1.8 percent. From February 2009 to February 2010, the Consumer Price Index for All Urban Consumers (CPI-U) rose by 2.2 percent.
Turning to measures from the survey of households, the unemployment rate held at 9.7 percent in March. Over the month, jobless rates for the major worker groups showed little or no change. Of the 15.0 million persons unemployed in March, 6.5 million had been jobless for 27 weeks or more, an increase of 414,000 over the month. These long-term unemployed made up 44.1 percent of all unemployed persons, a record high.
The employment-population ratio was 58.6 percent in March. This measure has been trending up since its recent low of 58.2 percent in December. Among the employed, the number of individuals working part time who preferred full-time work increased in March to 9.1 million.
In summary, nonfarm payroll employment rose by 162,000 in March, and the unemployment rate held at 9.7 percent.”
Source: BLS
So….the private sector added MORE jobs than expected which means the report was actually better than expected after removing the government fluffers. Doesn’t this mean more pressure on the Fed?
We’re in an odd period in my opinion. The stronger dollar is a reaction to the stronger US economy. This is not the deflationary dollar rally we saw in 2008. That’s a good sign.
But stocks tend not to perform during tightening phases (using historical data) so it’s odd that the dollar and bond markets are beginning to price in higher rates and stocks continue to move higher with total disregard for the potential impacts of stimulus removal.
TPC,
I’ve traded currency markets for two decades. You can’t manipulate the currency markets. It’s blatantly obvious that the equity futures are being manipulated. Today’s action in the dollar should not have resulted in a rally in equity futures. The dollar is rallying on the back of higher interest rates which is a definite negative for stocks.
I disagree. Government’s can and do manipulate currency markets every day.
I think the stronger dollar is simply a reflection of the stronger US economy when compared to Europe and Japan.
But it is surprising that the equity market is not reacting at all to the fact that this report puts more pressure on Bernanke to raise rates.
TPC,
The rates would have to be raised a lot more before the market will feel the pain. Even if Bernanke begins to raise rates they will be in baby steps. He and the other Fed governors have repeatedly reassured the markets that it’s too soon to raise. Perhaps once the yields on long bonds rise above 4% they may not have the choice to keep rates low. Until then the market is betting the rates will stay low or low enough to keep this rally going.
I agree, but I’m a little surprised that the market is not pricing in any change in Fed language and the end of various liquidity programs.
The Fed is slowly pulling out. MBS was the start. But the markets are unfazed by this. It’s surprising.
I’m still constructive on the economic outlook in H1, but would be surprised to see the rally continue at this trajectory.
To be honest I’m surprised myself how this market is unfazed by ANYTHING. A true teflon market. Yet the sentiment levels are only slightly bullish. The only thing I can think of right now is they are pricing in a recovery strong enough to withstand initial rate hikes (without getting into conspiracies and manipulations.)
Yes, never really understood the conspiracy chatter. If you knew Joe Schmo was going to rob the bank every day at 1PM and that the police weren’t going to do any then why wouldn’t you just tag along with Joe?
In other words, the conspiracy chatter appears to be nothing more than griping from people who have been on the other side of the trade.
Unfortunately, I’ve been marginally short for a few weeks now and wrong (though only for about a 1% loss in the short portfolio). I’m now battling with the idea that this market is just going remain higher into earnings (which I know will be good). I’ve marginalized a portion of the long portfolio which is unfortunate, but the risk/reward appeared favorable. Now the market appears to be taking a breather as opposed to correcting at all. I would certainly not add to longs here, but some short covering might be in order. No big news this week so we’ll see how the market handle that….Could prove pivotal.
I just initiated a Eusrostoxx 50 short position on the view that all positive news should be priced in and few bearish divergences but I’m ready to cover if next week price action will not be -at least- slightly bearish.
FXBot how can you say that the currency markets cannot be manipulated? What do you think the Chinese central bank is doing with pegging the Yuan to the U.S. dollar?
Agree. It doesn’t take much money to swing the futures markets. On a God Friday it takes even less.
TPC,
Your thoughts appear to be balanced. I wish I could be as balanced as you. It seems the Govt. is again spinning or manipulating (call it what you want) the employment numbers. It appears to me the only way they are getting better numbers is because of the huge number of the unemployed just falling off the cliff into no mans land. Well I guess they do end up in the Food Stamp line. It seems to me that as the sample shrinks, the employment number will naturally get better. There is always “some” level of hiring and firing going on.
I also find it odd that the Fed announced their holdings and it hasn’t been punctuated in the main street media. We basically have a Fed that is insolvent (minus the printing press). Now we get an unemployment number (that is horrible in my humble opinion) that can be spun as being better because of the lack of census hires. Also no one is talking about the increase in inventories as indicated in the ISM numbers. Have we in fact had our inventory re-build and are we now witnessing the build up due to the true lack of demand?
My guess is that the interest cost to finance America just went through the roof. If so, I’m headed to Kohl’s to get their 1 year special on a years worth of eatable dry goods. Again, sorry I can’t be more balanced.
RS,
No need to apologize. It’s hard for anyone to comprehend how all of this can be spun as such a positive when the unemployment rate is 9.7% and the real unemployment rate is almost 17%. In comparison to where we were a year ago this is certainly good news, however. The private sector is adding jobs. There’s no way to spin that as a negative in my opinion.
What is less clear is how this will influence future government stimulus. I would argue that this report brings us one step closer to Fed hikes and reduced government intervention in the housing market and other markets. I’ve called this a government run rally since the week they changed M2M and it remains so until the government steps aside.
What the equity markets are now ignoring is the likelihood of reduced government intervention. JP Morgan & Geithner say the recovery is “self sustaining”, but how can that be true when the consumer balance sheet remains upside down? I would argue that this recovery won’t be truly self sustaining until the consumer balance sheet is clean again and that’s about two years off by my estimates. If the government steps aside in H2 we’re going to see a very week economy in 2011 and 2012 and perhaps even a double dip. Throw in the risks in Europe and China and it could happen sooner than many think….
I agree. I also agree about the consumer debt reduction being the catalyst that provides sustainable economic growth. Don’t forget about the business debt that is primarily concentrated in the commercial real estate sector.
I think we have to be at, or close to, an inflection point for whomever is responsible for this slow “melt up” in equity values. They have to be asking themselves, “How can I get out of this alive”? Up until now the market participants have had the aid of two government crutches and it appears that the equivalent of one may be taken away.
The only question I have is how can Ben allow (if he truly can manipulate the economy) rates to rise? The debt service alone will shock this Nation. Maybe he’s encouraging the rise in commodity prices, i.e. oil. I mean if we hit $3.00 gas the consumer is sure to roll over again. There is not a stronger price control mechanism than consumer demand.
TPC,
That is basically what I have said all along. As far as there being any real job growth, those of us that live in the real world know better. Those are BLS pull out of your a** numbers. Maybe there are fewer people being laid off, but I have not seen any increase in hiring. I will wait on someone else in the blog group that likes to dig into that data to enlighten me.
Your take on trading in the market should have a qualifier. No one close to retirement needs to be messing in the market, unless they do it for a living. Any number of top analysts have said as much for quite some time now. We can not afford to take another major hit on our retirement savings.
TPC:
Half of the supposedly added jobs, 81000, came from the imaginary birth/death adjustment. I understand why the MSM outlets ignore this (they are either pumpers or too stupid to understand this) but why are you ?
Respectfully,
mj
There are always birth death adjustments. There were birth death adjustments when we were losing 700K jobs per month. This doesn’t change the fact that the jobs picture is improving substantially. I am not ignoring it, but implying that this month’s job’s data is weak (based on b/d) is misguided in my opinion.
TPC:
My point is this birth/death adjustment number is totally fictitious. It was fictitious when 700,000 jobs were reported being lost and it is fictitious now. To include this as either jobs added or jobs lost when evaluating employment is disingenuous because it is meaningless. For all we know, the actual birth/death adjustment for new/terminated businesses was +200,000 or it could have been -200,000. Unless there is a way of determining this number using actual counts it should be ignored. I look at the true number as +81,000 jobs of which 48,000 were census hires. This produces a number of 33,000 new jobs of which 40,000 were temporary. Hmmm. Please correct me if I am wrong.
MJ,
You’re correct. My only point is that the data is showing sequential improvement. The labor market really is improving (albeit marginally).
Even if you subtract the B/D adjustments each month you still can’t deny that there is improvement. Wall Street only cares about future economic growth. If this trend is likely to continue then Wall Street cheers it.
I am not trying to ignore the facts. I just don’t think anyone should waste their time trying to argue that the labor market isn’t improving when it’s very clear that it is. ISM, jobless claims, NFP all show the same trend in jobs….
TPC:
Thanks for the responses. I am not trying to promote an agenda (i.e. jobs situation is worsening). In my view, the jobs picture is leveling off/slightly improving but it drives me crazy when I see/hear reports in the MSM (even from financial outlets like Bloomberg and CNBC) misrepresenting the data. I was listening to the news on the radio in my car this morning and the news reader said something to the effect that the jobs report indicated private sector jobs had sky-rocketed. Aargh … I find your site quite informative and objective.
Peace.
Don’t get me wrong. I am not trying to paint this as some incredible report that will result in all things being healed.
We’ve gained 100K jobs back from the 8MM that were lost. In the grand scheme of things, this is not really good news at all and is why the UE rate is still so high. But what matters to Wall Street is that this looks like sequential growth and that gives the appearance of being a very good thing.
I would argue that the market has priced in a huge amount of good news at this point, but we’ll see how that plays out….