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Panic Deepens, US Employment Data Means Little

Panic Deepens, US Employment Data Means Little



Overview: The sharp sell-off in US equities and yields yesterday is spurring a mini-meltdown globally today. Many of the Asia Pacific markets, including Japan, Australia, Taiwan, and India, saw more than 2% drops, while most others fell more than 1%. The MSCI Asia Pacific Index snapped the four-day advance had lifted it about 2.8% coming into today. The story is similar in Europe. The Dow Jones Stoxx 600 came into today's session up about 1.3% for the week, but has given that back plus more and is now off about 1% for the week. Even after yesterday's plunge, the S&P 500 is up nearly 2.4% for the week coming into today's session. US shares are trading heavily, and the early indication is for an opening loss of more than 1%. Core bonds are on fire. The US 10-year yield is off 15 bp today to about 76 bp. It has fallen almost 40 bp this week. The 30-year yield is below 1.5%. The closest a G7 country has gotten to match such a move on the US 10-year is Canada, where its benchmark yield is off 26 bp to slip below 85 bp. The German 10-year Bund is within striking distance of its record low set last September near minus 74 bp. Peripheral European bond markets are seen as risk assets, and yields are firmer today, with Italy's benchmark actually now a little higher on the week. The UK's 10-year Gilt currently yields less than 25 bp. The dollar's safe-haven status is being tarnished. It is lower against all the major currencies, and many emerging market currencies, where eastern and central European currencies lead the advancers. The JP Morgan Emerging Market Currency Index is up about 0.2% today, which pares this week's loss to about 0.4%, its third consecutive weekly decline. After advancing 2% yesterday, gold is pushing higher still. It is approaching last week's multiyear high, just shy of $1690. Russia appears to be spurning OPEC's call for steep output cuts, sending oil prices reeling. April WTI is down about almost 4% today near $44 and is now off around 2% for the week after the 16% plunge last week. 

Asia Pacific 

Weakness in consumption in Japan to start the year lends credence to ideas that the world's third-largest economy is contracting for the second consecutive quarter. Household spending fell 3.9% year-over-year, nearly matching economists' projections, after a 4.8% decline in December. It is the fourth straight decline. Durable goods have been especially hard hit, led by a 10.7% decline in January auto sales after an 11.1% decline in December. Some daily data suggest that after the school closures were announced in late February, there may have been some a surge in necessity purchases. Labor cash earnings rose 1.5% year-over-year after a 0.2% fall in December. Yet, details may not be as favorable as the optics. Base pay did accelerate, but the real juice came from the 10.2% jump in bonuses. Lastly, the January leading economic indicator fell from 91.0 to 90.3, its lowest level since 2009. 

Australia's retail sales unexpectedly fell in January by 0.3% after the 0.7% decline at the end of last year. It is the first back-to-back decline in retail sales since July-August 2017. Weak wages, the peak of the wildfires, and high household debt levels are the likely culprits. The central bank cut rates by 25 bp earlier in the week, putting the cash rate at a record-low 50 bp. Another 25 bp rate cut next month is largely discounted. 

The dollar finished last week near JPY109.60 and is now threatening JPY105. Reports suggest that BOJ concerns will rise as if the dollar moves toward JPY100. It might prompt action at the March 19 policy meeting. The move is getting stretched technically, and the dollar is below the lower Bollinger Band (~JPY105.85). While there are some momentum traders jumping aboard, the key driver seems to be Japanese institutional investors who had been buying foreign bonds on an unhedged basis. The Australian dollar is firm, having built a small base near $0.6575-$0.6785 and is may close above the 200-day moving average (~$0.6635) for the first time since early January. Above there, the $0.6660 area beckons. It is the (38.2%) retracement of this year's decline. The dollar finished the mainland session near CNY6.9330, off about 0.85% this week.  It has returned to levels that prevailed before the Lunar New Year.  


German factory orders jumped 5.5% in January, more than offsetting the disappointing 2.1% decline in December. The median forecast in the Bloomberg survey was for a 1.3% gain. Of note, domestic orders slipped (-1.3%) for the first time in three months. Foreign orders jumped by 10.5% (-4.9% in December) led by eurozone members (15.1% vs. -14% in December). Consistent with some survey data that suggest the world's fourth-largest economy may have been on the mend before the virus struck.  

France's January trade figures disappointed. It reported a 5.9 bln euro trade deficit, about 20% larger than expected. Exports fell 4% on the month, while imports rose by 1.1%. Italy reported a flat retail sales report for January after a 0.5% increase in December. The 1.4% year-over-year rate is the highest since last July. The ECB meets next week, and most observers have focused on the loan facility (TLTRO) rather than a rate cut or an expansion of asset purchases.  

The euro broke above $1.11 at the start of the week and is now bid above $1.13 for the first time since last July. While some momentum players pushing the move, it seems that the driver is the buying back of short hedges among corporates and asset managers. The next important chart area is near $1.1460, a retracement objective of the two-year slide. Sterling carved a shelf near $1.2725-$1.2740 ahead of the 200-day moving average (~$1.2710) earlier this week and poked above $1.30 earlier today for the first time since February 25. It is more a function of the dollar's weakness than sterling strength. The euro is rising against sterling for the third consecutive week. The euro tested the 200-day moving average (~GBP0.8740) earlier this week before backing off. Now it seems to have a running start to try again.  


The first Friday of the new month should be about US (and sometimes, Canada) employment data. But not today. Oh, the data will still be reported, but it is not the focus and is unlikely to have much impact on the capital markets or policy expectations. Between the census and election workers, the government's payrolls are increasing, but are not the result of economic forces. The median forecast for private-sector hiring is for around a 160k after 206k in January. The 12-month average is near 156k, though more recently, it has averaged a little below 200k in the three months through January. The details may not be particularly interesting, though the unemployment rate could slip back to 3.5% from 3.6%. Due to the base effect, a 0.3% rise in average hourly earnings could see the year-over-year rate move to 3.0%. If all one knew was the stat of the US labor market, this week's emergency rate cut and expectations that the Fed will return to the zero-bound would be inexplicable. Separately, the US reports the January trade balance (deficit looks about 5% smaller) and the consumer credit figures. Four Fed officials speak today at the Shadow FOMC in NY (Bullard, Williams, Evans, and George) ahead of next week's blackout period. 

Canada reports January trade figures and February employment data today. Job growth is expected to moderate after a 34.5k jump in January (full-time positions surged by 35.7k), and the unemployment rate could tick up to 5.6% from 5.5%. Wage growth may slow. The Bank of Canada delivered its first rate cut in four years earlier this week and made a decisive 50 bp move. It meets again in the middle of April, and a 25 bp cut is mostly discounted.  

The US dollar continues to chop within Monday's range against the Canadian dollar (~CAD1.3315-CAD1.3440). It finished last week a little above CAD1.34. The risk-off, weakness in commodity prices, especially oil, has been blunted by the greenback's broad weakness and Canada's nearly 30 bp premium over the US on two-year borrowings, the most in five years. It is the weakest of the major currencies, with its slightly better than flat performance, while the next weakest is the British pound, which has gained almost 1.4% against the greenback (at ~$1.30). The dollar is rising against the Mexican peso for the 11th session in the past 12. The dollar has fallen in only two sessions since February 14. It traded as high as MXN20.15 earlier today. Two full forces are weighing on the peso: unwinding of carry trades, for which it was a favorite, and as a proxy for other, less liquid, or accessible emerging market currencies. The next important chart point is last August's high near MN20.26.  


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February Employment Situation

By Paul Gomme and Peter Rupert The establishment data from the BLS showed a 275,000 increase in payroll employment for February, outpacing the 230,000…



By Paul Gomme and Peter Rupert

The establishment data from the BLS showed a 275,000 increase in payroll employment for February, outpacing the 230,000 average over the previous 12 months. The payroll data for January and December were revised down by a total of 167,000. The private sector added 223,000 new jobs, the largest gain since May of last year.

Temporary help services employment continues a steep decline after a sharp post-pandemic rise.

Average hours of work increased from 34.2 to 34.3. The increase, along with the 223,000 private employment increase led to a hefty increase in total hours of 5.6% at an annualized rate, also the largest increase since May of last year.

The establishment report, once again, beat “expectations;” the WSJ survey of economists was 198,000. Other than the downward revisions, mentioned above, another bit of negative news was a smallish increase in wage growth, from $34.52 to $34.57.

The household survey shows that the labor force increased 150,000, a drop in employment of 184,000 and an increase in the number of unemployed persons of 334,000. The labor force participation rate held steady at 62.5, the employment to population ratio decreased from 60.2 to 60.1 and the unemployment rate increased from 3.66 to 3.86. Remember that the unemployment rate is the number of unemployed relative to the labor force (the number employed plus the number unemployed). Consequently, the unemployment rate can go up if the number of unemployed rises holding fixed the labor force, or if the labor force shrinks holding the number unemployed unchanged. An increase in the unemployment rate is not necessarily a bad thing: it may reflect a strong labor market drawing “marginally attached” individuals from outside the labor force. Indeed, there was a 96,000 decline in those workers.

Earlier in the week, the BLS announced JOLTS (Job Openings and Labor Turnover Survey) data for January. There isn’t much to report here as the job openings changed little at 8.9 million, the number of hires and total separations were little changed at 5.7 million and 5.3 million, respectively.

As has been the case for the last couple of years, the number of job openings remains higher than the number of unemployed persons.

Also earlier in the week the BLS announced that productivity increased 3.2% in the 4th quarter with output rising 3.5% and hours of work rising 0.3%.

The bottom line is that the labor market continues its surprisingly (to some) strong performance, once again proving stronger than many had expected. This strength makes it difficult to justify any interest rate cuts soon, particularly given the recent inflation spike.

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Mortgage rates fall as labor market normalizes

Jobless claims show an expanding economy. We will only be in a recession once jobless claims exceed 323,000 on a four-week moving average.



Everyone was waiting to see if this week’s jobs report would send mortgage rates higher, which is what happened last month. Instead, the 10-year yield had a muted response after the headline number beat estimates, but we have negative job revisions from previous months. The Federal Reserve’s fear of wage growth spiraling out of control hasn’t materialized for over two years now and the unemployment rate ticked up to 3.9%. For now, we can say the labor market isn’t tight anymore, but it’s also not breaking.

The key labor data line in this expansion is the weekly jobless claims report. Jobless claims show an expanding economy that has not lost jobs yet. We will only be in a recession once jobless claims exceed 323,000 on a four-week moving average.

From the Fed: In the week ended March 2, initial claims for unemployment insurance benefits were flat, at 217,000. The four-week moving average declined slightly by 750, to 212,250

Below is an explanation of how we got here with the labor market, which all started during COVID-19.

1. I wrote the COVID-19 recovery model on April 7, 2020, and retired it on Dec. 9, 2020. By that time, the upfront recovery phase was done, and I needed to model out when we would get the jobs lost back.

2. Early in the labor market recovery, when we saw weaker job reports, I doubled and tripled down on my assertion that job openings would get to 10 million in this recovery. Job openings rose as high as to 12 million and are currently over 9 million. Even with the massive miss on a job report in May 2021, I didn’t waver.

Currently, the jobs openings, quit percentage and hires data are below pre-COVID-19 levels, which means the labor market isn’t as tight as it once was, and this is why the employment cost index has been slowing data to move along the quits percentage.  


3. I wrote that we should get back all the jobs lost to COVID-19 by September of 2022. At the time this would be a speedy labor market recovery, and it happened on schedule, too

Total employment data

4. This is the key one for right now: If COVID-19 hadn’t happened, we would have between 157 million and 159 million jobs today, which would have been in line with the job growth rate in February 2020. Today, we are at 157,808,000. This is important because job growth should be cooling down now. We are more in line with where the labor market should be when averaging 140K-165K monthly. So for now, the fact that we aren’t trending between 140K-165K means we still have a bit more recovery kick left before we get down to those levels. 

From BLS: Total nonfarm payroll employment rose by 275,000 in February, and the unemployment rate increased to 3.9 percent, the U.S. Bureau of Labor Statistics reported today. Job gains occurred in health care, in government, in food services and drinking places, in social assistance, and in transportation and warehousing.

Here are the jobs that were created and lost in the previous month:


In this jobs report, the unemployment rate for education levels looks like this:

  • Less than a high school diploma: 6.1%
  • High school graduate and no college: 4.2%
  • Some college or associate degree: 3.1%
  • Bachelor’s degree or higher: 2.2%

Today’s report has continued the trend of the labor data beating my expectations, only because I am looking for the jobs data to slow down to a level of 140K-165K, which hasn’t happened yet. I wouldn’t categorize the labor market as being tight anymore because of the quits ratio and the hires data in the job openings report. This also shows itself in the employment cost index as well. These are key data lines for the Fed and the reason we are going to see three rate cuts this year.

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Inside The Most Ridiculous Jobs Report In History: Record 1.2 Million Immigrant Jobs Added In One Month

Inside The Most Ridiculous Jobs Report In History: Record 1.2 Million Immigrant Jobs Added In One Month

Last month we though that the January…



Inside The Most Ridiculous Jobs Report In History: Record 1.2 Million Immigrant Jobs Added In One Month

Last month we though that the January jobs report was the "most ridiculous in recent history" but, boy, were we wrong because this morning the Biden department of goalseeked propaganda (aka BLS) published the February jobs report, and holy crap was that something else. Even Goebbels would blush. 

What happened? Let's take a closer look.

On the surface, it was (almost) another blockbuster jobs report, certainly one which nobody expected, or rather just one bank out of 76 expected. Starting at the top, the BLS reported that in February the US unexpectedly added 275K jobs, with just one research analyst (from Dai-Ichi Research) expecting a higher number.

Some context: after last month's record 4-sigma beat, today's print was "only" 3 sigma higher than estimates. Needless to say, two multiple sigma beats in a row used to only happen in the USSR... and now in the US, apparently.

Before we go any further, a quick note on what last month we said was "the most ridiculous jobs report in recent history": it appears the BLS read our comments and decided to stop beclowing itself. It did that by slashing last month's ridiculous print by over a third, and revising what was originally reported as a massive 353K beat to just 229K,  a 124K revision, which was the biggest one-month negative revision in two years!

Of course, that does not mean that this month's jobs print won't be revised lower: it will be, and not just that month but every other month until the November election because that's the only tool left in the Biden admin's box: pretend the economic and jobs are strong, then revise them sharply lower the next month, something we pointed out first last summer and which has not failed to disappoint once.

To be fair, not every aspect of the jobs report was stellar (after all, the BLS had to give it some vague credibility). Take the unemployment rate, after flatlining between 3.4% and 3.8% for two years - and thus denying expectations from Sahm's Rule that a recession may have already started - in February the unemployment rate unexpectedly jumped to 3.9%, the highest since February 2022 (with Black unemployment spiking by 0.3% to 5.6%, an indicator which the Biden admin will quickly slam as widespread economic racism or something).

And then there were average hourly earnings, which after surging 0.6% MoM in January (since revised to 0.5%) and spooking markets that wage growth is so hot, the Fed will have no choice but to delay cuts, in February the number tumbled to just 0.1%, the lowest in two years...

... for one simple reason: last month's average wage surge had nothing to do with actual wages, and everything to do with the BLS estimate of hours worked (which is the denominator in the average wage calculation) which last month tumbled to just 34.1 (we were led to believe) the lowest since the covid pandemic...

... but has since been revised higher while the February print rose even more, to 34.3, hence why the latest average wage data was once again a product not of wages going up, but of how long Americans worked in any weekly period, in this case higher from 34.1 to 34.3, an increase which has a major impact on the average calculation.

While the above data points were examples of some latent weakness in the latest report, perhaps meant to give it a sheen of veracity, it was everything else in the report that was a problem starting with the BLS's latest choice of seasonal adjustments (after last month's wholesale revision), which have gone from merely laughable to full clownshow, as the following comparison between the monthly change in BLS and ADP payrolls shows. The trend is clear: the Biden admin numbers are now clearly rising even as the impartial ADP (which directly logs employment numbers at the company level and is far more accurate), shows an accelerating slowdown.

But it's more than just the Biden admin hanging its "success" on seasonal adjustments: when one digs deeper inside the jobs report, all sorts of ugly things emerge... such as the growing unprecedented divergence between the Establishment (payrolls) survey and much more accurate Household (actual employment) survey. To wit, while in January the BLS claims 275K payrolls were added, the Household survey found that the number of actually employed workers dropped for the third straight month (and 4 in the past 5), this time by 184K (from 161.152K to 160.968K).

This means that while the Payrolls series hits new all time highs every month since December 2020 (when according to the BLS the US had its last month of payrolls losses), the level of Employment has not budged in the past year. Worse, as shown in the chart below, such a gaping divergence has opened between the two series in the past 4 years, that the number of Employed workers would need to soar by 9 million (!) to catch up to what Payrolls claims is the employment situation.

There's more: shifting from a quantitative to a qualitative assessment, reveals just how ugly the composition of "new jobs" has been. Consider this: the BLS reports that in February 2024, the US had 132.9 million full-time jobs and 27.9 million part-time jobs. Well, that's great... until you look back one year and find that in February 2023 the US had 133.2 million full-time jobs, or more than it does one year later! And yes, all the job growth since then has been in part-time jobs, which have increased by 921K since February 2023 (from 27.020 million to 27.941 million).

Here is a summary of the labor composition in the past year: all the new jobs have been part-time jobs!

But wait there's even more, because now that the primary season is over and we enter the heart of election season and political talking points will be thrown around left and right, especially in the context of the immigration crisis created intentionally by the Biden administration which is hoping to import millions of new Democratic voters (maybe the US can hold the presidential election in Honduras or Guatemala, after all it is their citizens that will be illegally casting the key votes in November), what we find is that in February, the number of native-born workers tumbled again, sliding by a massive 560K to just 129.807 million. Add to this the December data, and we get a near-record 2.4 million plunge in native-born workers in just the past 3 months (only the covid crash was worse)!

The offset? A record 1.2 million foreign-born (read immigrants, both legal and illegal but mostly illegal) workers added in February!

Said otherwise, not only has all job creation in the past 6 years has been exclusively for foreign-born workers...

Source: St Louis Fed FRED Native Born and Foreign Born

... but there has been zero job-creation for native born workers since June 2018!

This is a huge issue - especially at a time of an illegal alien flood at the southwest border...

... and is about to become a huge political scandal, because once the inevitable recession finally hits, there will be millions of furious unemployed Americans demanding a more accurate explanation for what happened - i.e., the illegal immigration floodgates that were opened by the Biden admin.

Which is also why Biden's handlers will do everything in their power to insure there is no official recession before November... and why after the election is over, all economic hell will finally break loose. Until then, however, expect the jobs numbers to get even more ridiculous.

Tyler Durden Fri, 03/08/2024 - 13:30

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