Morning Report: ADP and BLS differ by a country mile 4/6/18

Vital Statistics:

Last Change
S&P futures 2642 -19
Eurostoxx index 374.5 -1.62
Oil (WTI) 63.07 -0.44
10 Year Government Bond Yield 2.80%
30 Year fixed rate mortgage 4.43%

Stocks are lower after Trump announced more tariffs against China. Bonds and MBS are flat.

Jobs report data dump:

  • Payrolls up 103,000 (below expectations)
  • Unemployment rate 4.1% (above expectations)
  • Labor Force Participation Rate 62.9% (increase of 0.1%)
  • Average Hourly Earnings up 0.3% / 2.7% (in line with expectations)

Another month where the ADP number (increase of 241k) and the BLS number (increase of 103k) were a mile apart. Weather may have played a part in the low payrolls number, as the Midwest and East Coast were hit by a number of snowstorms that knocked out power early in the month. Construction employment fell, which kind of supports that theory. Wage inflation remains in check for the most part. The employment-population ratio was flat at 60.4%. Overall, a disappointing report, but the weather makes me want to put an asterisk next to it.

The NFIB reports that almost a third of small businesses raised wages to attract and / or retain employees last month, which was the highest percent since 2000.

Forget about the old picture of the Rust Belt – decaying small towns that peaked in the 1950s and crashed during the 1970s. Things have changed. When you think of Detroit, you now think of Quicken Loans, and places like Elkhart Indiana are unable to keep $90,000 SUVs in stock because the town is booming with factory workers making $68,000 on average. At full production, workers are making $90k, and foremen are making 6 figures. The unemployment rate is basically zero – a town of 50,000 people has 9.500 unfilled job openings. Despite what some economists think about employers having market power and exhibiting monopsonist behavior (hard to believe dozens of employers in a single locality could collude), the laws of supply and demand do in fact apply to the labor market.

CFPB Acting Director Mick Mulvaney responded to Elizabeth Warren’s letter that posed about 100 questions about how the agency is being run. Suffice it to say, she believes the agency isn’t being aggressive enough. Mulvaney’s response was basically to say that he doesn’t have to respond, and doesn’t intend to. “When I served on the House Committee on Financial Services as a Member of Congress, I was frequently frustrated with what I perceived to be a lack of responsiveness, transparency and accountability at the Bureau,” Mulvaney wrote. “I encourage you to consider the possibility that the frustration you are experiencing now, and that which I had a few years back, are both inevitable consequences of the fact that [the Dodd-Frank Act] insulates the Bureau from virtually any accountability.” The saga continues..

Donald Trump announced plans for another $100 billion in tariffs against China last night, and China responded with plans to retaliate. As of now, this is still in the trash-talking phaseLarry Kudlow says negotiations haven’t even begun yet.

Treasury has issued a set of recommendations for modernizing the Community Reinvestment Act. Probably the biggest change would be to move the focus from where bricks and mortar branches are to where the banks actually lend. This would bring the law up to date with the concept of less branches and more online banking. The other recommendation is to bring in more standardization and more certainty into what the government is looking for in examinations. In other words, make the law less arbitrary.

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