Stocks and Mortgage Bonds are both lower so far this morning. The BLS Jobs Report would have normally been released this morning but is postponed due to the longest government shutdown on record. While the official BLS data will not be released, there are other private reports that are showing significant weakness in the labor market.
On Wednesday, ADP showed only 42,000 jobs created…but that does not include government jobs, which are beginning to show weakness. Most of the government workers that were let go were paid through September and should begin to show up in the numbers in the October data.
Revelio Labs is a private company that releases their own “Jobs Report” by looking at over 100 million U.S. profiles that mirror the national workforce and cover two thirds of all employed individuals. This compares with the BLS Jobs Report that covers 27% of the work force, and the Household Survey that only covers 0.03% by calling 60,000 households. Revelio's report is well respected and showed continued weakness in labor.
Revelio reported that there were 9,000 job losses in October, with September being revised down 27,000 to 33,000 jobs. Again, Revelio may be showing more weakness than the ADP report because it includes government jobs, and those workers let go are starting to show up in the numbers. This is evidenced by Federal Continuing Claims, which just hit the highest level since 2019.
Additionally, ADP may not cover large companies that are not a customer, and there have been big layoffs in several top tech companies.
Indeed reported that job openings are at their lowest level since February 2021, adding to the weakness.
Even with all the signs of a softening labor market, there are still Fed members like Cleveland Fed President Beth Hammack who believe the labor market is doing OK and is stable. While she is not worried about the labor market, she is extremely concerned with inflation, not looking at temporary tariff impacts, or the overstatement in shelter and portfolio management. Hammack thinks the Fed is barely restrictive if at all and is clearly not in favor of a rate cut at the December 10 meeting.
New York Fed President John Williams, who is always a voting member and is well respected at the Fed, changed his tune on how restrictive the Fed is currently. Williams said that R*, which is used to calculate the neutral rate and Fed restrictiveness, is lower than previously thought and will continue to move lower. Previously, he believed R* was at 0.75%, which was the higher end of the range of Fed members.
Williams’ recent comments mean that the Fed is not as restrictive as he previously thought and that there is more room to cut rates before getting to neutral.
Technical Analysis
Mortgage Bonds continue to trade in a very narrow range between support at the 50-day Moving Average and overhead resistance at the 25-day Moving Average. Bonds have been in this range for most of the last week and are like a spring that is being coiled…eventually it will break out in either direction, we hope to the upside. There is over 30bp to room before the next ceiling and about 30bp of room to the next floor…depending on the direction of the break.
The 10-year has been volatile the last two sessions but has managed to get back beneath the 50-day Moving Average this morning, which is a good sign. The next floor is the 25-day, which is 4.06%.
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