Morning Report: Goldilocks jobs report and the FOMC minutes 7/6/18

Vital Statistics:

Last Change
S&P futures 2740 2
Eurostoxx index 381.23 -0.36
Oil (WTI) 42.31 -0.63
10 Year Government Bond Yield 2.82%
30 Year fixed rate mortgage 4.52%

Stocks are flattish this morning as a good jobs report offsets the new tariffs that went into effect this morning. Bonds and MBS are up.

Jobs report data dump:

  • Payrolls up 213,000 (street was looking for 190,000)
  • Unemployment rate 4% (.2% increase, street was looking for 3.8%)
  • Labor force participation rate 62.9% (.2% increase)
  • Average hourly earnings +.2% MOM / 2.7% YOY (in line with expectations)

Overall, a good report – strength in payrolls, and an increase in the labor force participation rate. The labor force increased by 600k, where the number of unemployed increased 500k and the number of employed increased 100k. Of those 500k added to the ranks of the unemployed, 200k were re-entrants to the labor force. The achilles heel (at least as far as those looking for wage growth) has been the reservoir of the long-term unemployed. This will help ease some of the labor shortage, which has been a constraint on growth. It will also raise the non-inflationary growth rate for the economy overall, which is kind of like a speed limit. For the Fed, this is a bit of a Goldilocks report – it gives them the breathing room to lift rates gradually which limits the risk of a recession.

The FOMC minutes didn’t really reveal much new information. Most pointed to the strong labor market and cited several statistics (JOLTS, unemployment rate, regional Fed surveys) to point to a tight labor market. “Several” members (i.e. a minority) thought that there was still some slack in the market as the long term unemployed are re-entering the labor market. Note this morning’s jobs report bears that out. The members also discussed the slope of the yield curve, and whether the flattening was telling them anything. Interestingly, only “some” participants thought that the Fed’s asset purchase program (i.e. QE) was affecting the shape of the yield curve, and therefore distorting the information sent from it. Kind of begs the question – if QE didn’t affect the shape of the yield curve, then what was the point? Or even more importantly, why do they still have $4.5 trillion worth of bonds on the balance sheet?

The Fed also thought about the possibility of a trade war and how that would end up slowing down the economy. They also thought that they might have to raise the Fed funds rate further than they had anticipated earlier: “With regard to the medium-term outlook for monetary policy, participants generally judged that, with the economy already very strong and inflation expected to run at 2 percent on a sustained basis over the medium term, it would likely be appropriate to continue gradually raising the target range for the federal funds rate to a setting that was at or somewhat above their estimates of its longer run level by 2019 or 2020.”

The Fed Funds futures turned slightly more hawkish on the minutes, with the probability of a Sep hike increasing from 75% to 80% and the chance of a Sep and Dec hike hitting 53%.

In other economic news, the trade deficit fell to the lowest level in 18 months. Not sure how much of that is due to tariffs already in place.

Tariffs (especially lumber) are wreaking havoc on the entry-level new housing market. Builders generally have to purchase things like land and materials up front before they build and get paid for the construction. When materials prices are artificially supported by tariffs, that increases their risks, and makes them pull back.

36 Responses

  1. When teens go out dressed like that, really, they are just *asking* to be assaulted by large men:

    http://dailycaller.com/2018/07/05/cnn-marc-lamont-hill-assault-teen-tweet/

    Like

  2. What do you think the chances are Mexican-Americans don’t actually want to turn America into Mexico?

    https://www.dailywire.com/news/32679/surprise-democrats-coming-short-hispanics-ben-shapiro

    As Kraushaar points out, the real risk for Republicans lies with suburban white women.

    Like

  3. Trump racist in his support of Asians:

    http://thefederalist.com/2018/07/05/asian-americans-are-the-tipping-point-of-affirmative-action/

    That bigot! Fortunately, the Democrats are leading the fight against the Yellow Peril for all real Americans.

    Like

  4. The AP might be lying to us for political reasons. Huh. Color me surprised!

    Like

  5. Good read:

    “Summer Reading for the Trump Administration: Ron Chernow on the Midterm Elections of 1866

    By Amy Davidson Sorkin

    July 5, 2018”

    https://www.newyorker.com/news/daily-comment/summer-reading-for-the-trump-administration-ron-chernow-on-the-midterm-elections-of-1866

    Like

    • The bitching is amazing. I get the goal is to normalize every fetish and personal identity choice, but constantly telling your most likely allies that they are awful for not living their lives exactly the way they want them to is a bad (and hypocritical) strategy.

      Logically, if you want to become a woman despite having been “assigned” a designation of male at birth (because of the irrelevant trivia of having been born with male genitalia) and insist that everybody be fine with it and celebrate it, then it should be fine for Scarlett Johansson to want to play a trans person in a movie, despite not being a trans person, and everybody should be fine with it and celebrate it.

      Why are they insisting she be assigned a particular box as an actress and be imprisoned in it? How is what they want wonderful, but what she wants awful?

      Spoiled, entitled hypocrites. If they want trans people to play trans people AND play cisgendered people . . . how are the goals of wanting trans folks to play cisgendered people while simultaneously forbidding cisgendered people from playing trans people not 100% hypocrisy and double-standardism?

      Finally, if they want those things, why is it Scarlett’s or anybody else’s job to make it happen? They want those movies and TV shows, they either need to make them or work on getting themselves in the position to make them.

      I didn’t see any mention on Sense8 it that article, where the same thing happens: a straight actress plays a trans woman in that show. Which was created by two trans women (The Wachowski siblings!) … I guess because it wouldn’t have been cool to call out two trans women for having produced a show where a trans character is played by a woman instead of a trans woman?

      We are such a rich, spoiled society.

      Like

  6. Lol

    Like

  7. Democrats could have gotten a lot of stuff from Trump in exchange for the wall.

    https://www.politico.com/magazine/story/2018/07/06/gateway-tunnel-new-york-city-infrastructure-218839

    Liked by 1 person

    • Yup. Never understood modern politics. Each side could get so much of what they want if they cut deals. But no. Saying we stopped the other guy is more important than saying “hey we did this!”

      Like

      • KW:

        Each side could get so much of what they want if they cut deals. But no. Saying we stopped the other guy is more important than saying “hey we did this!”

        If that is really the case, it seems strange then that the primary criticism of “establishment” politicians from each respective base is that all they do is compromise their principles by cutting deals with the other side.

        I think that, far from being the inexplicably stupid people you think they are, politicians are actually quite aware of what generates headlines, attention, and votes, and that for politicians on the left, campaigning on “Stop Trump’s wall!” is going to get a lot more headlines, attention, and votes than is campaigning on “I traded the wall for a tunnel in NYC!”

        Like

        • It’s not an illegitimate criticism, but I think the issue there is that they tend to compromise (or appear to) for personal or political reasons rather than to advance any policy on their own side. Even if they are trying to advance policy on their own side, it appears like they are just caving and getting nothing in the bargain (except some sort of personal political benefit or social benefit, maybe). The thing is, it could be (if it was an issue of moving desired policy goals forward) a fair-ish trade. Or, an opportunity to give an opponent a visual win in return for a real policy win on your side. Something like that.

          I think that, far from being the inexplicably stupid people you think they are

          I never said that. I don’t think they are stupid–just not particularly devoted to advancing actual policy goals or governing in an actual sense–and I certainly don’t think it’s inexplicable. I think the incentives are pretty obvious. My suspicion the sort of person who would be interested in horse trading for the advancement of policy/projects/governing preferences is not the kind of person who would want to go through the campaign and PR requirements of elected politicians generally, or can’t successfully raise money and get elected.

          Like

        • KW:

          My suspicion the sort of person who would be interested in horse trading for the advancement of policy/projects/governing preferences is not the kind of person who would want to go through the campaign and PR requirements of elected politicians generally, or can’t successfully raise money and get elected.

          My sense is that in fact a huge amount of horse trading does go on, just not so much on high profile, hugely polarizing issues.

          Like

        • I think that is a fair suspicion.

          Like

  8. Interesting thread.

    Cannon’s too #NeverTrump for my taste but he legal eagles here my like this thread.

    Intraparty fights make me hard.

    Like

  9. Also, how come the Ruskies can rig the US Presidential election but not the World Cup?

    Liked by 1 person

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