The Fed is still cutting in November.
Don’t forget we’ll get another job report before the next meeting, and that report will likely be impacted by the Boeing strike and the hurricane. There’s a good chance of a weak report and we’ll all overreact to that one, too.
The Fed would have a lot of eggs on its face if it went from 0bps to 50bps back to 0bps right after calling for two more 25bps cuts before year end. I think they are doing 25bps no matter what.
But don’t just take my word for it. The market has a 97% probability of a 25bps cut on November 7th.
Last Week This Morning
- 10T: 3.98%
- German Bund: 2.22%
- 2T: 3.93%
- SOFR 4.85%
- Term SOFR 4.85%
- JOLTs: 8.04mm vs 7.693mm expected
- Nonfarm Payrolls: 254k vs 150k expected
- Unemployment Rate: 4.1% vs 4.2% expected
- The Eagles didn’t lose!
Those Jobs Tho!
The Fed is never cutting again! The next move is a hike! Alabama is #1 again! The Fed never should have cut in the first place!
Simma down now.
Friday’s job report was good news in that the wheels aren’t falling off. But it’s not a signal that the economy is overheated. The last three monthly reports had averaged 140k. Over the same time period two years ago, the monthly average was 465k.
By now you should know to account for the eventual revisions. Let’s subtract the average monthly revision of 68k from 254k and we get 186k. Still pretty good.
But there was one sector that saw outlier job gains…servers. “Employment in food services and drinking places rose by 69,000 in September, well above the average monthly gain of 14,000 over the prior 12 months.” That is verbatim from the BLS report. That’s 55k more than the monthly average.
Let’s subtract that 55k from 186k and get 131k. Not quite as gangbusters anymore, right?
I wonder if all the real estate and tech layoffs find it reassuring that they can find jobs in Leisure and Hospitality? If you carve out the top 3 contributors, how strong is the labor market really?
Don’t forget, the NFP print potentially counts every job you have. If you work at two different places and each place gets contacted by the BLS, you get counted twice. The unemployment rate survey, however, does try to track whether you have multiple jobs.
This is the part where you try to act surprised when I tell you multiple job holders accounted for a gain of 121k last month.
Are we sure 254k is so strong?
I guess it’s a good thing that if you want to work multiple jobs, you can, but doesn’t that signal something else is amiss? And if you are an employer, who are the first to get cut when business slows?
The jobs report is actually two separate surveys, the Establishment Survey (NFP) and the Household Survey (Unemployment Rate) and they are usually in agreement. But not today. Bloomberg’s Anna Wong put together this graph to highlight the crazy discrepancy between the two labor market surveys. The orange bars are “unexplainable”, which are prime candidates for eventual revisions. The current gap is more than 2mm jobs of “unexplainable” delta between the two surveys.
But JP, Jobless Claims are down! That confirms people are finding jobs!
Maybe…or maybe their year of unemployment benefits have expired and they are no longer eligible to file a jobless claim. The unemployment rate started climbing a year ago, isn’t there some chance claims are dropping as people are no longer permitted to file? In a totally unrelated story, “long term unemployed” increased by 97k…
My point isn’t that the labor market is terrible, it’s that it’s not as strong as the headlines suggest. And it’s certainly not overheated. The Fed needs to keep cutting so as not to flip the labor market upside down.
One last thing before we go…the government makes a seasonal adjustment to the number each month in attempt to normalize the data. They always do this and it makes total sense. But last month’s seasonal adjustment was one of the biggest on record.
- Unadusted government hiring was 918,000 in September
- Unadjusted private sector hiring were losses of 458k in September
- Unadjusted unemployment rate is 4.5%
Rates
Pretty please, with sugar on top, don’t describe the Fed cutting as trying to stimulate the economy. That’s inaccurate. We are 2% away from rate cuts being stimulative. If you are arguing that they shouldn’t be cutting, you are making the same mistake the Fed has made in every other easing cycle.
The T10 is testing 4% again. With 4.02%-ish as the next resistance level, we are unlikely to magically drift up to 4.25%. A crazy inflation print might cause us to break through, but I doubt it. I think jobs are all that matter right now and 4.02% is likely to hold unless something jobs related happens to drive rates higher.
The Week Ahead
Much quieter week with Thursday’s CPI the main event.
