Morning Report – ADP Employment misses 4/1/15

Posted on April 1, 2015 by Brent Nyitray

Stocks are lower this morning after the ADP jobs data came in light. Bonds and MBS are up.

Construction spending fell by .1% in February and January was revised down by 1.7%. Residential construction continues to lag the economy, however office construction is picking up. Surprising since vacancy rates are still somewhat elevated.

The ISM Manufacturing Index fell to 51.5 in March, showing some of the slowdown is not simply weather-related.

Payrolls increased by 189k in March, according to ADP. The Street is currently predicting that Friday’s jobs report will show an increase of 245k. Note that the government will be open on Good Friday however the stock markets will be closed and bonds will have an early close. We could see some volatility in bonds if the payroll data is unusually weak or wage inflation in unusually high.

It looks like the dumb money is piling into the Chinese stock market, and much of it is leveraged. This was after the government started telling people that stocks were cheap. The government already has problems with an over-built real estate market and is pulling policy levers to support prices. Historically governments have never been able to manage the deflation of asset prices in an orderly manner, and it is unlikely the Chinese government will be able to either. Their banking system is already on shaky ground. What that means for the US is unclear. We should see Chinese money exit the luxury real estate market in the US, but what happens to Treasuries is anyone’s guess.

Student loan debt is a big problem for the first time homebuyer, as everyone knows. At the same time, there is a movement to begin debt strikes, where students refuse to pay back their loans. At the moment, it is limited to the failing private for-profit universities, however if this gains traction, it could spread. The left, led by Elizabeth Warren, has been egging this on a bit, but they are playing with fire. The government backs these loans and will have to eat the losses if this movement grows.

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