Fed Gets Rate Cut Ammo it Needs From Questionable Jobs Report
The latest jobs report demonstrates a barely-passing grade for the U.S. economy.
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If you want excitement, you need to watch the social media feud that boiled over on Thursday, not the payroll data.
On the surface, the report seemed decent.
139,000 jobs, with 140,000 in the private sector. The unemployment rate stayed the same.
Average hourly earnings ticked up, to 3.9% year over year, which is great for workers, but maybe not as great for the bond market.
But, there are a lot of things to pick on, with this report.
The prior two months were revised down by 95,000. That negates much of this month’s reported gain in the Establishment Survey.
The Household Survey, used for the unemployment rate, lost over 600,000 jobs. The unemployment rate remained unchanged, only because labor force participation dropped by a similar amount.
The birth/death model (a measure trying to estimate the number of jobs created by new businesses and lost from defunct businesses) “only” added 199,000 jobs. With low survey response rates, etc., there are a lot of things to question about the quality of the data (the seemingly endless downward revisions validate that “questioning”), but this number is back to “bothering” me.
Without this calculated number, we would have lost jobs in the Establishment Survey (kind of like the Household Survey indicated). Sure, it is possible that in a time of peak uncertainty, lots of new businesses were formed, but the number seems high. It is the second month in a row when there is a lot of uncertainty, where birth/death adjustment was bigger than the number itself. That is why I would weigh this into being more dovish, if I was at the Fed.
Apparently, weather was worse than usual, so that might have impacted the data negatively.
Overall, the report is probably a C+.
If the Fed was looking to cut rates, it could probably come up with a story around this data, to let it do so. Since the Fed doesn’t seem to be looking to cut rates, though, there is enough of a narrative in this report to keep it on hold.
After this data, I remain in the three-to-four-cuts-this-year camp, starting in July.
While the social media “feud” on Thursday between Donald Trump and Elon Musk seemed to primarily affect Tesla TSLA (that stock moved enough to drag the entire market down), the market had moved higher, earlier, on headlines that the President was making progress with China. Real progress there would be helpful to the market, but a lot is priced in already, at this stage.
Consensus is that this “feud” will tone itself down and not have bigger ramifications. That seems likely the logical way for this to progress, and I really hope it doesn’t derail the 2025 budget. It will be “interesting” to see how this develops and whether there are broader implications from the direction Musk has gone. It doesn’t seem that way, but who had this “feud” playing out the way it did, on their bingo card? The breakup seemed like an easy bet, the nastiness of Thursday wasn’t.
The market seems to be taking the data as “solid” with bonds selling off and stocks rallying. As frequently seems to be the case, look for the initial reaction to retract over the course of the day. This report wasn’t that strong.
The other issue we all face, is it is incredibly difficult (if not impossible) to derive much about the “steady state” of the economy going forward, from this data. We are in “pause” mode on tariffs, which is manageable, and we need some version of budget 2025 to make it through as well, to keep the positive momentum on the economy (and markets) continuing.
