Morning Report – Deluge of data 8/1/14

Stocks are lower this morning after yesterday’s bloodbath. Bonds and MBS are up.

The jobs report came in weaker than expected. Payrolls increased by 209,000, and the two-month payroll revision was +15,000. The unemployment rate ticked up to 6.2% and the labor force participation rate rose to 62.9% from 62.8%. However hourly earnings were flat and average weekly hours were flat as well. The lack of wage pressure cheered the bond market, which is clawing back yesterday’s losses. FWIW, the employment cost index showed a .8% increase in wages yesterday (benefits are calculated separately), so the lack of wage growth as reported by BLS is surprising.

By the way, for the bond market to start worrying about wage inflation, you will need to see increases in average wages of about 4%, not the 2% inflation target. Why? Productivitiy, which is running about 2% (notwithstanding the lousy print in Q1). Wage inflation that is offset by productivity increases is not inflationary. So, when you think about the US needing 4% wage growth just to get to the Fed’s inflation target, you can see we have a long way to go.

Still, we aren’t going to see a robust economy until the labor force participation rate gets back to normal levels. As you can see from the chart below, about half of the increase in the labor force participation rate that was attributable to women entering the workforce starting in the 1960s has been given back. That low number represents excess capacity that isn’t being captured with the headline unemployment number. Which is why wage growth is so hard to come by (the other reason being technology).

Labor force participation rate bbg

Personal Spending rose .4% in June, and Personal Income rose .4% as well. The core personal consumption expenditure index rose 1.5% year-over-year, still below the 2% target the Fed would like to see.

The ISM numbers came in stronger than expected, showing that manufacturing continues to do well, A 57.1 number would correspond to GDP growth of 4.6%. Of course manufacturing doesn’t dominate the economy (and employ people) like it used to, but it is still a good, strong number.

Finally, construction spending slipped 1.8% in June after increasing an upwardly-revised .8% in May. Resi construction fell .2% month-over-month but is up 7.1% year-over-year.

32 Responses

  1. Heh.


  2. It was discussed on the News Hour last night:

    “Anne Neal is the president of the American Council of Trustees and Alumni.

    So, we have on the program because you don’t think this legislation will help solve what we know is a serious problem.

    ANNE NEAL, American Council of Trustees and Alumni: Well, that’s right.

    It is a serious problem. And we should all be deeply concerned about rape and sexual assault. But I think the question really is, where should the onus be to deal with this problem? This legislation and other actions that we have seen coming out of the Department of Education and from the vice president’s office would essentially put the onus on our colleges and universities.

    And, quite frankly, we have a criminal justice system, we have police departments. And it’s our contention that that’s where the onus should lie. We have this criminal justice system. And rather than trying to make our colleges and universities an extension of law enforcement, let’s put the responsibility of where it should be in the police room and in the courts.”

    Go to the cops and use the justice system to prosecute crimes? Crazy talk.


  3. I’ve never understood how a possible criminal act gets funneled in to the college disciplinary system.
    that said, my wife reports that as a freshman at ND, she was advised by her RA to go to the local police and not the campus police if something happened.


  4. The Democrats run into some people they can’t buy off:

    “Even in the worst times in the ’90s and they were impeaching the president, at least they had something they wanted. These people want nothing. If you’re negotiating with somebody who wants nothing, you have very little leverage. “Nothing is our agenda.””



  5. Bagger’s are what Progressive’s think nihilists are.


  6. We believe in nossing Lebowski


  7. Brent, I just want to thank you yet again for MR. I believe that it is more illuminating in less time than anything comparable that I read, and often leaves me without a question just because it is so straightforward. Or perhaps because of my basic ignorance, but either way, thanx.


  8. Any guesses on mortgage rate direction for the rest of the year? I’m looking at buying a new house.


  9. Thanks, Mark…

    jnc, my guess is higher, though I didn’t see this bond rally coming..


    • I just have to tell this story to someone.

      I took my 14yr old daughter golfing for the first time this morning. I was surprised she wanted to go because she is generally much happier to read a book than to engage in any kind of sport. She’s a voracious reader, with a book in her hand all the time. I bought her a kindle 2 years ago so she could just order books without having to go to the bookstore all the time.

      Anyway, we’re on the second hole and I suggested she should hit her 9-iron. She said that she didn’t have one. I said “Sure you do” and pulled the 9-iron out. She said “Isn’t that a 6-iron” so I pointed out the two dots below the number, indicating that it was the bottom and hence a 9.

      “Oh,” she says, “I thought that was an umlaut.”

      I told her I think that may be the first time ever the word “umlaut” has been used on a golf course.


    • Brent…where’s the 10yr trading? (I’m on my mandatory 2 weeks.)


  10. Pretty cool. She speaks German?

    How’s the one in college doing? Where did she end up?


    • Does an umlaut over a 6 cause it to be pronounced “s¨chs” instead of “sechs”?

      Great answer from her and I hope she enjoyed the outing. I so hate putting [surely I have mentioned this here] that I can never find golf fun. Driving range is OK, though.


      • mark:

        Great answer from her and I hope she enjoyed the outing.

        I think she found it surprisingly enjoyable. Another quote, from hole 10: “I have to admit this is a lot better than watching it on TV.”


    • jnc:

      She does not speak German. I assume she picked it up from her extensive reading. (Seriously, I downloaded the Kindle app for my iPad once and as a result I could see all the books she had downloaded and read. The number was astonishing to me.)

      The oldest one had a great first year at Boston College. When I picked her up last October for her first trip home after going to school, she couldn’t wait to get back home to sleep in her room and see her friends and sisters. I told her it wouldn’t be long before she didn’t want to come home at all and I don’t think she believed me. Then when I picked her up in May after the school year, she cried her eyes out because she didn’t want to leave.

      Currently in the process for number 2, who is a senior this year. Common app went live today, in fact, and she is busy working on it as I type. She can’t wait to get out of high school and into college (and away from home!). Senior year can’t go fast enough for her.


  11. Scott: Sep 10 year treasury futures are trading at 125-08.

    10 year cash yield 2.50%


  12. Regarding the comment at the top, I’d expect nothing less from a Schmuckeye.



  13. Scott, the 10 year has been trading like a tech stock the last couple days. Big sell off yesterday, big rally today..


  14. mortgage banking means always being short convexity. No fun on days like these…


  15. Isn’t the real question will they allow a gay wedding at the site?


  16. The arrogance of knowing the mainstream media won’t call her out on it, so they can ignore everyone else..


    • The arrogance of knowing that…even if the mainstream media calls her on it, her constituency will re-elect her.


  17. My understanding is that once Snarlin’ Arlen kicked the bucket, the title of Nastiest Legislator fell to her.

    Nova might be able to confirm or deny.


  18. The fact that this is funny,

    And that people still think single-payer would be better…


  19. Sublime.


  20. By any means necessary…


Be kind, show respect, and all will be right with the world.

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )


Connecting to %s

%d bloggers like this: