Payrolls - A Tale Of Two Reports
Authored by Peter Tchir via Academy Securities,
A Tale Of Two Reports
The Establishment Survey said we added 227k jobs and even had upward revisions of 56k to the prior two months. Pretty darn good.
Much better than ADP which came in at only 146k with significant downward revisions to last month, but that’s not the really weird part.
The unemployment rate ticked up to 4.2% from 4.1%. That is with the labor force participation rate dropping from 62.6% from 62.5%. So it is more like a rise of 0.2% and is because the Household Survey (which is the basis for the unemployment rate) had job losses of 355k (on top of last month’s job losses of 368k). It looks like we lost both full-time and part-time jobs in that report.
The initial reaction of lower treasury yields on the back of higher unemployment might not be the right move. The margin for error of the Household Survey is much bigger than that of the Establishment Survey (which is so high itself, that I’m not sure why we fixate so much on this data – the 90% confidence interval is +/- 130k for the Establishment Survey – which is kind of huge relative to the number itself).
See BLS Technical Note.
But since we have to deal with the data that we have, there are other things that point to a strong report:
Earnings came in slightly higher than expected.
Hours worked remained the same (slightly higher in fact as last month was revised down).
Last month, the birth/death model added 368k jobs (more than the total number of jobs), but this month it came in at a much smaller 5k, which to me, indicates more likelihood that the jobs are real and not coming from “plugged” data that may be wildly off (though that is a rough take at best).
Bottom Line
Fed cuts 25 at next meeting.
Will remain very data dependent. Will point to unemployment rate as a reason to remain vigilant, but will also have to address the strength of ADP and Establishment versus the Household. I think that holds them in check and they won’t commit to cutting more at next meeting.
The small rise in wages, couple with other hints of inflation, which is likely to tick higher as some companies are buying up merchandise ahead of “expected” Trump tariffs.
That will definitely be something Powell is forced to highlight.
Should be a “neutral” to mildly hawkish 25 bps, as the underlying data, away from the unemployment rate, based on back to back bad months in the Household survey, is likely to be deemed the outlier.
This could be the “final” squeeze of this recent short squeeze and I expect yields to tick higher, possibly later today, but definitely early next week.
I think relatively indifferent for stocks, but given how excited people have gotten about the market, they will need more data or news to drive prices higher, and I think we are in a “lull” out of D.C. where the next set of comments from President Elect Trump will likely to be ramp up the chaos level to reset negotiation starting positions even further apart from those whom he plans on negotiating with!
Our London road trip lead to some really interesting conversations and perspectives, and we did get the opportunity to go on Bloomberg TV from London yesterday (starts at the 1:12 mark).