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Stocks are slightly higher and Mortgage Bonds are lower after a stronger than expected BLS Jobs Report.
BLS Jobs Report
The Bureau of Labor Statistics (BLS) reported that there were 303,000 jobs created in March, which was much stronger than the 200,000 expected. February was revised slightly lower from 275,000 to 270,000 and January was revised higher by 27,000 from 229,000 to 256,000. Combined, there were 22,000 in positive revisions to the previous two months, adding to the strength of the report.
68% of the job gains came from three sectors:
Average hourly earnings, which measures wage pressured inflation, rose 0.3%, which was in line with estimates. Year over year, average hourly earnings fell from a an upwardly revised 4.3% to 4.1%, also as expected.
Average weekly hours worked rose from 34.3 to 34.4. Average weekly earnings rose 0.6% last month and increased from 3.8% to 4.1% year over year.
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 the and the Household Survey is where the unemployment rate comes from.
The Household Survey has its own job creation component, and it showed 498,000 job gains, ending a three-month losing streak. The labor force increased by 469,000, but since there were more job gains than the increase in the labor force, the unemployment rate fell from 3.9% to 3.8%.This is not going to help the Fed want to cut rates any sooner.
If you look at the u-6, which is a broader measure of unemployment within the BLS report and does not remove people, the unemployment rate remained at 7.3%.
Looking deeper at the 498,000 job creations in the household survey – There were 6,000 full time job losses, with all of the gain coming from part-time, which added 691,000 jobs. Of that, 217,000 were multiple job holders.
Additionally, all of the gain came from those aged 16-19 and 55+, which combined added 488,000 jobs. If you look at the main cohort of workers aged 25-54, we lost 48,000 jobs. These figure support the fact that we saw full-time job losses and all the gain came from part time. If there was a weak spot within the report, the quality of job gains was it.
Bottom line – This was a strong report that is pressuring MBS lower and 10-year yields higher and is likely going to cause June rate cut odds to fall.
News Next Week
Tuesday: NFIB Small Business Optimism Index
Wednesday: Mortgage Apps, Consumer Price Index, 10-year Auction, Fed Minutes from 3/20 Fed Meeting
Thursday: Initial Jobless Claims, Producer Price Index, 30-year Auction
Friday: Michigan Consumer Sentiment
Technical Analysis
Mortgage Bonds are testing a triple ceiling of resistance, formed by the 50, 100, and 25-day Moving Averages. If Bonds are rejected from this level, there is a lot of room to the downside before the next floor of support at 100.427.
The 10-year tested 4.40% right after the jobs report, but has since pulled back a bit to 4.36%. Yields are in a very wide range between resistance at 4.418% and support down at 4.23%, so we are susceptible to large swings.
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