Current position: Carefully Floating
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The stock market is closed, and bonds will be closing at 12:00 p.m. ET in observation of the Good Friday holiday. Bonds are moving lower to start the day, following a mixed March jobs report. While job creation was in line with estimates, the unemployment rate decreased, but wage-pressured inflation moved lower. There were some other signs of weakness when you dug deeper, as explained below.
March Jobs Report
The Bureau of Labor Statistics (BLS) reported that there were 236,000 jobs created in March, which was in line with estimates of 240,000. There were 17,000 negative revisions to January and February, which does temper the gains a bit.
72,000 of the gains were in Leisure and Hospitality, which has been a huge driver of job gains. But we have gained back 98 percent of the jobs that were lost due to the pandemic...so there are likely not a lot of job gains left in this sector. Remember, the latest JOLTS report showed a sizable drop in job openings in this area over the last two months.
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 577,000 job creations while the labor force increased by 480,000. This caused the unemployment rate to fall from 3.6% to 3.5%.
Average hourly earnings were up 0.3% in March, which was in line with estimates. Since last year, average hourly earnings are up 4.2%, which is a decline from 4.6% and the lowest post covid yearly increase we have seen.
Average weekly hours worked declined by 0.1 to 34.4 hours, which is the lowest amount of hours worked since 2019 when not including COVID. That means that on average, out of the 161 million workers in the US, their hours were reduced by 0.1 hours. So instead of reducing headcount, it appears companies cut worker hours, but if you calculate how many jobs this would be equivalent to, it would be like losing 468,000 jobs.
Average hourly earnings were flat month over month but are now up only 3.3% year over year, a big drop from 4% in the previous report and 4.4% in the one before that. This is the lowest increase in almost two years.
Next Week
Next week will be very important, highlighted by the CPI inflation report.
Tuesday: NFIB Small Business Optimism Index
Wednesday: Consumer Price Index; Fed Minutes from the March 22 Fed Meeting; Mortgage Apps; 10-year Auction
Thursday: Producer Price Index, Initial Jobless Claims, 30-year Auction
Friday: Industrial Production & Capacity Utilization, Retail Sales
Technical Analysis
Mortgage bonds are lower following the mixed jobs report. Historically, we can see things rebound throughout the day as the markets try to dig through the internals and sift out some of the "under the hood" weakness...but it is a thin trading session with the holiday and early closing. Bonds are battling with the important 200-day moving average level. If Bonds can remain above this level, there is room for Bonds to improve...but if they convincingly break beneath it, they will move lower to 100.768. We need to be patient to see the true market reaction next week. Begin the day carefully floating.
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