Friendly Job Numbers Help Bond Market

Stocks and Mortgage Bonds are both higher so far this morning after the release of the BLS Jobs Report, which was weak on all fronts.

BLS Jobs Report

The Bureau of Labor Statistics (BLS) reported that there were 151,000 jobs created in February, which was slightly weaker than estimates of 160,000 to 170,000. The previous two months were revised lower by 2,000 jobs in total, as December was revised higher by 16,000 and January was revised lower by 18,000.

The faulty birth/death model added 136,000 jobs. Without it, the figure would have been much weaker.

Average Hourly Earnings rose 0.3%, which was in line with estimates. Year over year, Average Hourly Earnings were reported at +4%, which was lower than the 4.2% expected and an increase from 3.9% in the previous report. But the January reading was revised lower from 4.1% to 3.9%.

Average Weekly Earnings, which measures take home pay, and factors in average hourly earnings and hours worked, rose by 0.3%. While hours worked were unchanged, they are only 34.1, which is the lowest level in 15 years and is very weak. Average Weekly Earnings were up by 3.4%, which is down from 3.6% in January. And January was revised lower from 3.8% to 3.6%. Bonds reacted favorably to the lower wage-pressured inflation.

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 showed that there were 588,000 job losses, while the labor force decreased by 385,000. Because there were more job losses than the decrease in the labor force, the unemployment rate rose from 4% to 4.1%. But things would have been worse if not for the exodus from the labor force. Adding back those who were no longer counted results in an unemployment rate of 4.4%.

The U-6 unemployment rate, which adds everyone back in and is more indicative of the real unemployment rate, surged from 7.5% to 8%, the highest level since October 2021.

The 588,000 in job losses is clearly weak, but even more so when we look at the breakdown of the types of jobs gained versus lost. We lost 1.2M full-time jobs and saw 610,000 part-time job gains. Additionally, all the job gains came from those aged 16-19 years old, totaling 80,000. Those 20 years old or more fell 667,000.

Clearly everyone is looking at this number, including the administration and the Fed. This report applies more pressure for the Fed to cut as early as May. The market is now fully pricing in three rate cuts this year.

Bessent Comments

Treasury Secretary, Scott Bessent, spoke on CNBC this morning and gave his thoughts on the economy. He explained that the market and the economy have become hooked and addicted to government spending and there’s going to be a detox period. He also said that this economy that they inherited is starting to roll a bit, meaning he is expecting a bit of a slowdown, at least temporarily. He made it clear that it would not be their economy until six to twelve months out.

Bessent also reiterated that tariffs are a one-time price adjustment and pointed to dropping oil prices and mortgage rates.

News Next Week

Tuesday: NFIB Small Business Optimism Index, JOLTS

Wednesday: Mortgage apps, Consumer Price Index, 10-year Auction

Thursday: Producer Price Index, Initial Jobless Claims, 30-year Auction

Technical Analysis

Mortgage Bonds held at support at 101.39 yesterday and are moving higher today, breaking above resistance at 101.55, but failing to get above the next ceiling at 101.68.

The 10-year is moving lower and is now testing the 200-day Moving Average, which is always a key level. A break beneath that could send yields back down to their recent lows at 4.126%.