Friday, 2/5/10 10:06 AM
Jan employment hit at 8:30 this morning; non-farm jobs were down 20K with the unemployment rate falling to 9.7% frm 10.0% in Dec and Nov. If there was a real consensus on what markets were expecting it was unchanged on jobs and 10.01% on the unemployment rate. As expected in the annual revisions, job losses from Apr 2008 to Mar 2009 were 1.2 mil more jobs lost than the data reflected previously; from 7.2 mil lost jobs to 8.4 mil lost. Markets were looking for the worsening revisions so not much reaction after the strong rally yesterday in the bond market and the decline in the equity markets. At 9:00 the DJIA futures traded +6 after being down 60 points prior to the employment; the 10 yr -2/32 at 3.62% and mortgage prices -6/32 (.18 bp) frm yesterday's close. At 9:30 the DJIA opened +28, the 10 yr note -2/32 at 3.62% and mortgage prices -3/32 (.09 bp).
Factory payrolls increased 11,000 in January, the biggest gain since April 2006, after falling 23,000 in the prior month. The median forecast by economists called for a drop of 20,000. Government payrolls decreased by 8,000 in January. State and local governments reduced employment by 41,000 during the month, while the federal government added 33,000. The increase at the federal level reflected in part the hiring of temporary workers to conduct the 2010 census. Payrolls at builders fell 75,000 last month after decreasing 32,000. Financial firms reduced payrolls by 16,000, after a 7,000 decline the prior month. Service industries, which include banks, insurance companies, restaurants and retailers, added 40,000 workers after subtracting 96,000 in December. Retail payrolls increased by 42,000 after an 18,000 decline. The so-called underemployment rate -- which includes part- time workers who’d prefer a full-time position and people who want work but have given up looking -- fell to 16.5% from 17.3%.
As always, the employment report generates a wide range of opinions. The half full people see the decline in the unemployment rate as a significant improvement while the half empty camp sees the decline in the unemployment rate as an anomaly and tied to some initial hiring of census workers. Census workers over the next few months will distort the true picture of the employment situation as the government hires thousands of part time workers to count heads. Our take away from the data this morning is unemployment is not improving as businesses extend workers hours and get more productivity from less employees and that isn't likely to change. In Q4 worker productivity increased 6.2% while unit labor costs declined 4.4%. There are 700K part time employed now that are under-employed and cannot find a job commensurate with their skills. Have to do a lot of spinning to make the employment situation a silk purse instead of the pigs ear.
So far this morning stocks and interest rate markets have been quite volatile; at 9:30 the DJIA opened +28 10 minutes later -33, another 5 minutes and the DJIA was back to +4; the bond and mortgage markets will take their lead from how equities traded the rest of the day. Yesterday's strong rally in the bond market was set in motion by big declines in the stock indexes with the DJIA ending down 268 points; the 10 yr note even with the strong decline in its rate (3.70% to 3.61%) failed once again to take out its rock solid resistance at 3.60%, mortgages however did break their chart resistance slightly. As much as we would like to see the glass half full, until the 10 yr rate slips below 2.60% and holds below it, the rate market is subject to selling pressure; it all depends on what the stock market does the rest of the session.
At 3:00 this afternoon, another key data point; Dec consumer credit. Markets are looking for credit to continue its nine month decline with credit declining $9.5B. Consumers are key to recovery and that key isn't fitting in the lock right now.
PRICES @ 10:00 AM
10 yr note: 98.04 +1/32 3.60% unch
5 yr note: 99.29 +4/32 2.27% -2 BP
2 Yr note: 100.06 +2/32 0.77% -3 BP
30 yr bond: 97.02 unch 4.55% unch
Libor Rates: 1 mo 0.228%; 3 mo 0.249%; 6 mo 0.385%; 1 yr 0.837%
30 yr FNMA 4.5 Feb: 101.09 -2/32 (.06 bp) (+3/32 (.09 bp) frm 9:30 yesterday)
15 yr FNMA 4.0 Feb: 101.28 -3/32 (.09 bp) (unch frm 9:30 yesterday)
30 yr GNMA 4.5 Feb: 101.17 -3/32 (.09 bp) (+2/32 (.06 bp) frm 9:30 yesterday)
15 yr GNMA 4.0 Feb: 102.19 -3/32 (.09 bp) (unch frm 9:30 yesterday)
Dollar/Yen: 89.39 +0.43 yen
Dollar/Euro: $1.3666 -$0.0051 (dollar better)
Gold Apr: $1057.50 -$5.50
Crude Oil Mar: $72.85 -$0.29
Goldman-Sachs
Commodity Index: 485.34 -0.52
DJIA: 9967.04 -35.14
NASDAQ: 2121.27 -4.15
S&P 500: 1059.58 -3.53