We got the big jobs report for November, and as anticipated there was a bounce back in Jobs with 227,000 job creations. A deeper dive shows some internal weakness, which is helping Bonds move higher.
BLS Jobs Report
The Bureau of Labor Statistics (BLS) reported that there were 227,000 jobs created in November, which was slightly stronger than estimates of 214,000. Many of these jobs were “bounce back” jobs from the strikes/storms.
Another strong point within the report was the 56,000 in positive revisions to the previous two months. September was revised up by 32,000, from +223,000 to +255,000. The change for October was revised up by 24,000 from +12,000 to +36,000.
The Birth/Death model, which has been a culprit of overstating job growth, was +5,000..which still overstated job growth compared to ADP’s small business losses, but did not have a huge impact on the numbers.
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 355,000 job losses. The previous report showed 368,000 job losses, so clearly there is a big divergence between the Business and Household Surveys – the gap over the last 2 months is 1 million jobs!
The number of unemployed people increased by 161,000, while the labor force shrunk by 193,000. This resulted in the unemployment rate rising to 4.246%, which was just barely rounded down to 4.2%, but close to being 4.3%. As we saw in the previous report, there has been an exodus in the labor force. The BLS calls households and asks them a series of questions – If they have been looking for work over the last four weeks, and had done an interview or submitted an application, they are counted as unemployed. If they didn’t, they are removed from the labor force and unemployed rates…even though they are still unemployed. This understates the actual unemployment rate – In October, without the exit from the labor force, the unemployment rate would have been 4.3% vs the 4.1% reported. In today’s report, without the 193,000 exit from the labor force, the unemployment rate would have been 4.4% vs the 4.2% reported.
There is a measure of unemployment called the u-6 that adds these individuals back, and that rose from 7.7% to 7.8% and is a more realistic measure of the actual unemployment rate.
Another weak point in the Household Survey was the types of jobs lost - We lost 111,000 full time jobs and lost 268,000 part time workers. Additionally, the only age group that saw job gains was those 16-19 year old, which likely is seasonal hires. All other age groups saw big declines.
Bottom line – The headline job figure and the revisions showed some strength in today’s report, but the weakness in the Household Survey is what the Bond market is focusing on. We had taken a cautious approach going into the report to protect the recent gains due to the unreliability of the Jobs Report…but we are pleased to see MBS reacting positively to the news.
News Next Week
Tuesday: Productivity and Unit Labor Costs
Wednesday: Mortgage Apps, Consumer Price Index, 10-year Treasury Auction
Thursday: Initial Jobless Claims, Producer Price Index, 30-year Bond Auction
Technical Analysis
Mortgage Bonds are continuing to move higher, challenging the 100-day Moving Average resistance level. If Bonds can confirm a move above this ceiling, there is a lot of room to the upside.
The 10-year has moved lower and is contending with the 50-day Moving Average and 50% Fibonacci retracement level as support.
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