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MBS Highway Daily Updates 02/03/2023

Current position: Carefully Floating

Stocks and Mortgage Bonds are both sharply lower after a much better than expected Jobs Report...but something smells within the report.

January Jobs Report

The Bureau of Labor Statistics (BLS) reported that 517,000 jobs were created in December, which was stronger than expectations of 185,000. There were 71,000 positive revisions to November and December, which adds to the strength of today's report.

Remember, there are two surveys within the Jobs Report: the Business Survey and the Household Survey. The Business Survey is where the headline job creation number comes from and includes a lot of modeling and estimations. The Household Survey is where the unemployment rate comes from and is derived from calling households to see if they are employed.

The Household Survey has its own job creation component, and it showed that there were 894,000 job creations, while the labor force increased by 866,000. This caused the unemployment rate to decline from 3.5% to 3.4%—the lowest unemployment rate since 1969. The labor force participation rate increased from 62.3% to 62.4%.

While these figures appear VERY strong, there were big adjustments in January. New seasonal factors, new benchmarks, and new population estimates/controls were established. If you look at the household survey, the number of job creations would have only been 84,000 vs. the 894,000 reported when removing the adjustments.

Looking deeper at the face value numbers, of the 894,00 job creations in the household survey, 606,000 were from part-time workers and 288,000 were full-time.

Average hourly earnings were up 0.3% in January and are up 4.4% year over year, which is down from 4.6% in the previous report. This decline is a good thing for inflation, but weekly earnings grew significantly.

Average weekly earnings only rose by 1.2% last month and are up 4.7% on a year over year basis, up significantly from 3.1% in the previous report. The reason weekly earnings saw a big increase is that it not only includes hourly earnings but also the number of hours worked, which increased. Hours worked increased from 34.4 to 34.7.

Bottom line, there is a huge difference between what ADP said (+106,000 jobs) and what the BLS said. We tend to think that based on everything we are hearing about the economy, the ADP is more accurate. And the revisions, new benchmarks, and population adjustments all played a major role. The markets are reacting to the headlines, but we hope that as the day goes on, these numbers are digested and the market comes back.

Technical Analysis

With the latest decline, Mortgage Bonds went all the way down to their 25 and 50-day Moving Average dual floor of support, which is holding for now. The 10-year shot up to 3.53%, right at its 25 and 50-day Moving Average. We had advised locking yesterday, ahead of this report, so your pipeline should have been protected. With the damage done this morning and support holding, as well as the potential for things to turn around once the data is digested, begin the day carefully floating.


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