Stocks and Mortgage Bonds are both higher to start the day after a weaker than expected Jobs Report likely solidifies a 25bp rate cut by the Fed next week.
BLS Jobs Report
The Bureau of Labor Statistics (BLS) reported that there were only 12,000 jobs created in October, which was much weaker than estimates that were already low at 113,000. There was some impact of the strikes/storms that the BLS cannot quantify, but it was weak regardless.
There were 112,000 in negative revisions to the previous two months. August was revised down by 81,000, from +159,000 to +78,000, which completely changes the report. The change for September was revised down by 31,000, from +254,000 to +223,000.
The Birth/Death model, which has been a culprit of overstating job growth, was +368,000..which does not sync up with the 4,000 small business jobs created in the ADP report. Without the Birth/Death, we would have seen significant job losses.
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 the Household Survey is where the unemployment rate comes from.
The Household Survey has its own job creation component, and it showed 368,000 job losses…so you would think that the unemployment rate would rise. However, because 220,000 people left the labor force, it appeared to remain the same at 4.1%. But the details tell a different story – The unemployment rate did actually rise. The actual number in September was 4.051%, which was rounded to 4.1%. The October figure was 4.145%, also rounded to 4.1%...but the change was almost 0.1% or 0.094% to be exact. This is still a material change. Without the exodus from the labor force of -220,000 people not counted, the unemployment rate would have risen to 4.3%.
Clouding this all was the ‘Not at work due to bad weather’ which totaled 512k, but as they still remained EMPLOYED, it was NOT deducted from the household survey calculation. So the -368,000 in jobs created is a non-impacted number and very weak.
Another weak point in the Household Survey was the types of jobs lost - We lost 164,000 full time jobs and lost 227,000 part time workers. Additionally, one of the reasons for the beat in September was a big jump in 16-19 year olds right as they are going back to school. Well they didn’t last long and most of those jobs have now been lost.
Bottom line – This report showed a lot of weaknesses and remember that September will get revised once more and October will be revised twice as well. Today’s report, in our opinion, solidifies the Fed cutting 25bp on November 7.
News Next Week
Tuesday: ISM Services, 10-year Auction, Election Day
Wednesday: Mortgage Applications, 30-year Auction
Thursday: Initial Jobless Claims, Fed Decision
Technical Analysis
Mortgage Bonds are attempting to stabilize after a rough few weeks. Bonds are still in a very wide range between support at 98.73 and overhead resistance at the 200-day Moving Average, meaning they are susceptible to whipsaws and big price moves before reaching either support or resistance.
The 10-year was much lower in the early going, but has since moved up to 4.30%. Yields are still trading just beneath a very important ceiling at the 4.33% Fibonacci, which they need to remain beneath, otherwise the next stop is around 4.50%.
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