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MBS Highway Daily Updates 05/05/2023

Current position: Carefully Floating

Today is the last day to take 30 seconds to fill out our May Housing Survey, and feel free to share the link with your Realtors for their input. Take the survey HERE!

Stocks are higher and mortgage bonds are lower following a stronger than expected April Jobs Report—at least on the headline number.

April Jobs Report

The Bureau of Labor Statistics (BLS) reported that 253,000 jobs were created in April, which was stronger than estimates of 180,000. But there were 149,000 negative revisions in February and March. February was revised lower by 78,000 from 326,000 to 248,000, while March was revised lower by 71,000 from 236,000 to 165,000. When factoring in the revisions from the previous two months, there were really only 104,000 net job gains compared to what we expected. Unfortunately, even though we may have been right with the numbers from last month, the markets are reacting to the headline figures. You wonder if they are going to revise this report lower.

One of the biggest reasons why we saw job gains was the birth/death model, where the BLS estimates hiring from new business creation relative to closed businesses. The problem with it is that it overestimates during the inflection point of a downturn and underestimates at the inflection point of an upturn after a recession. In April, it added 378,000 jobs. It's hard to believe there were that many businesses created last month with the economic climate and banking issues where there is much less lending.

The diffusion index, measuring sectors adding and those shedding jobs, was just 57.4 vs. 57 in March, which was the lowest since COVID and shows that the job gains are not well spread through industries.

Leisure and hospitality, which has been a huge driver of job gains, only added 31,000 jobs, potentially starting to crest.

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 only 139,000 job creations while the labor force decreased by 43,000. This caused the unemployment rate to fall from 3.5% to 3.4%, but for the wrong reasons.

Average hourly earnings were up 0.5% in April, which was hotter than estimates of 0.3%. From last year, average hourly earnings are up 4.4%, which is up from 4.3%.

Average weekly hours worked remained at 34.4 hours, which is the lowest amount of hours worked since April 2020.

Average weekly earnings were also up 0.5% month over month and are now up 3.8% year over year, up from 3.4% in the previous report.

Technical Analysis

Mortgage bonds are lower following the Jobs Report, but we hope the bond market digests some of the weaker internals throughout the day. Bonds have broken back beneath their 200-day moving average and are now sandwiched between a triple floor of support and the aforementioned 200-day MA overhead.

The 10-year is moving higher to 3.44%, testing overhead resistance at the 25-day moving average and 3.43% ceiling. Begin the day carefully floating.


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