A One-Month Jobs Aberration, or Something More?

Today's payroll report was a mixed bag, but the market is viewing it as bearish. This has Treasury bonds pressing a key resistance point. Here are my thoughts.

Overall job growth slow

The headline payroll number from today's employment report was pretty weak at 98,000. Worth noting that the survey week for the Establishment survey was during the big snowstorm in the Northeast, but that fact was built into the pre-release surveys that predicted 180,000. Plus, we got downward revisions of 38,000 from the prior two months. Even if we boost the 98,000 for weather vagaries, it is still a pretty weak result.

What to make of this? Employment gains looked like they slowed during the fourth quarter only to surge in January and February. It is possible that this surge was a one-off, perhaps boosted by Trump-induced business confidence. Logically, employment only can grow faster than labor force growth for so long. We definitely should not dismiss the possibility that this is noise in the data. This would mark the fifth time in the last three years where a single month's job gains were under 100,000. All the other times we rebounded right to trend in the ensuing months.

Household survey very strong

The idea that perhaps this very low read is just statistical noise is boosted by two facts. One is that the ADP survey on Wednesday was strong. The second is that the Household Survey (which is used in the official Unemployment Rate) showed plenty of strength, adding 472,000 jobs. Of course, the Household Survey is notoriously volatile. As recently as January it showed net job losses. But over time, the Household Survey and the Non-Farm report tend to tell the same story. By that measure, so far this year, the Household Survey indicates a net job gain of 889,000 jobs, far higher than the Non-Farm figure of 549,000. The truth is somewhere in between most likely. But all in all, I'm not inclined to believe that job growth is truly weakening.

Wages in line

By far the most important thing for the Fed is where wages come in. On that front, we're on trend. Year-over-year Average Hourly Earnings were up 2.7%, which is 0.1% lower than last month, but in line with expectations. That shouldn't change anything about the Fed's trajectory.

Watch 2.32% on the 10-year Treasury

Not surprisingly, Treasury yields are falling on this report. I understand why, of course, but as I said above, I don't think this fundamentally changes anything about job growth. It also shouldn't change your expectations for the Fed. Some of today's move probably has something to do with Syria as well, since Treasuries looked muted overnight, obviously waiting to see how payrolls came out.

That said, there is serious resistance at 2.32%. As I write this we are trading at 2.30%. I expect some serious short covering if we close below 2.32%. I think there is a gap between here and 2.22% if we do close below there. If you want to reset a short, I'd do it there. But if you are already short, I'd try to hang tough