Stocks are lower after Greece officially missed its payment to the IMF. Bonds and MBS are up small.
The week after the jobs report is usually data-light and this week is no exception. The only data that should matter is retail sales on Thursday. While the labor market seems to be improving, consumer spending is still lagging. Part of that is demographic, where you have a bunch of old rich people who probably bought their last TVs, toasters, etc and a bunch of young broke people.
Bonds got rocked on Friday after the stronger than expected jobs report. 280,000 jobs were created in May, and the two prior months were revised upward from “dismal” to “not hideous.” Average hourly earnings rose to $24.96, up 2.3% from last year. The unemployment rate ticked up to 5.5% as the labor force participation rate improved to 62.9%. It is looking like the first quarter weakness was indeed transitory, and weather-driven. It probably doesn’t mean the Fed is moving in June, but September is definitely in play.
The big question the Fed is grappling with is the ceiling on the labor force participation rate. If it is high, say 66% – 67%, then returning workers will keep a lid on wages, and the Fed will be able to let the economy run a bit longer. It also means the overall growth potential for the economy is higher. If the ceiling is low, say 64% – 65%, it means wage inflation will force the Fed’s hand earlier, which means the “speed limit” of the economy is lower. Of course demographics explain some of the long term changes in the labor force participation rate, however many of the long-term unemployed want to (and need to) have a full-time job. Whether they can get meaningful jobs after being on the sidelines for multiple years is an open question.
In spite of the huge sell-off in bonds over the past two months, the street is forecasting a 2.5% 10 year yield for 2015. The Fed has been consistently over-optimistic on the economy in general, and the simple fact that the Fed funds rate is increasing does not necessarily mean long term rates are going to go up big. Take a look at the chart below: it is the 10 year bond yield minus the Fed Funds target rate. In the last tightening cycle (early 2004 to early 2006), the Fed Funds rate increased from 1% to 5.25% over the course of two years. During that same period, the 10 year bond yield increased from about 4.8% to 5.2%. The yield curve actually inverted towards the end of the cycle (which more or less broke the real estate bubble). In other words, the Fed could start hiking rates this year and we could see the 10 year go basically nowhere.
Filed under: Morning Report |
Frist! Happy Monday!
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Now this is funny.
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Actually, what would be funnier (and probably more tragic for Paltrow) would be if she had to survive on food stamps, and in the process got fat because of the types of cheap food she had to live on.
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GE potentially leaving Connecticut due to Malloy’s tax hikes.
http://www.nationalreview.com/article/419435/ge-considering-leaving-connecticut-over-democrats-tax-hikes-mark-antonio-wright
I would love to see it happen. However, this kind of talk really bugs me:
They can do better, sure, but they routinely choose not to. It’s their own damn fault for electing Dems and their magical thinking year after year.
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The icing on the cake would be going to Kansas.
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jnc:
The icing on the cake would be going to Kansas.
Too perfect.
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I guess chicks dig the gyno.
http://www.nationalreview.com/article/419286/why-liberals-oppose-over-counter-birth-control-jillian-kay-melchior
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Interesting series of essays on the differences between the political left and right. (I think I already linked to the first one a couple weeks ago.)
http://www.nationalreview.com/article/418831/defend-position-you-must-understand-both-sides-dennis-prager?target=author&tid=900932
http://www.nationalreview.com/article/419177/progressives-try-reform-society-conservatives-work-improve-themselves-dennis-prager?target=author&tid=900932
http://www.nationalreview.com/article/419498/nothing-more-feelings-liberals-policy-yardstick-dennis-prager?target=author&tid=900932
In brief and simplified form, the three differences pointed out are:
1) The left believes that humans are inherently good, and bad actions are the result of external, usually societal, influences. The right believes that humans are inherently flawed, and bad actions are the result of poor individual choices.
2) The left focuses on and seeks to improve what it sees as societal moral defects. The right focuses on and seeks to improve what it sees as individual moral defects.
3) With regard to public policy, the left asks “Does it feel good?” The right asks “Does it do good?”
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