Morning Report: Reassuring jobs report

Vital Statistics:


Last Change
S&P futures 2915 4.25
Oil (WTI) 52.60 0.14
10 year government bond yield 1.53%
30 year fixed rate mortgage 3.84%


Stocks are higher after the jobs report. Bonds and MBS are down.


The economy added 136,000 jobs in September, versus Street expectations of 145,000. August’s number was revised upward by 38,000 to 168,000. The unemployment rate fell to 3.5%, which is the lowest in 50 years. The labor force participation rate was flat at 63.2% and the employment-population ratio ticked up to 61%. Average hourly earnings were flat on a MOM basis and up 2.9% YOY.


Overall, it confirmed that we are seeing a bit of a deceleration in the economy, although we are nowhere near a recession. The Fed Funds futures are handicapping a 75% chance of a 25 bp rate cut at the October meeting at the end of the month.


If the unemployment rate is at a 50 year low, we can pretty much dismiss the recession talk as the press generating alarmism to capture eyeballs, right? Not necessarily. We have had recessions in the past with unemployment rates this low. Take a look at the chart below. It plots the unemployment rate and the Fed funds rate. The vertical shaded areas are recessions. You can see that we hit 3.5% unemployment in 1969 and entered a recession soon thereafter. You can see the cause of that recession however in the Fed Funds rate, which went from 4% to 9% in the two years leading up to it. Similarly, we had a recession in 1973 – 75 even though unemployment was in the mid 4% range immediately prior. That one was caused by the Arab Oil Embargo. That said, you can see that most recessions are preceded by a tightening cycle out of the Fed, and that explains why the Fed is now cutting rates – they worry they might have overshot.


unemployment vs fed funds


As home prices increase, many homeowners are considering renovation loans (like 203k or HomeStyle) to increase the value of their house. What are the best renovations, in terms of return on investment? Hint: not a swimming pool. It is a new roof. What about kitchen renovations? Homeowners can expect to recoup about 50% – 60% of the cost in increased home value. Same with bathroom upgrades and master bedrooms. It turns out that mundane upgrades (wood flooring, insulation, roofing) provide more bang for the buck than the more dramatic ones.



25 Responses

  1. I suspect front yard landscaping/maintenance can have a big ROI, but is more difficult to quantify. The fact it really can be DIY complicates the analysis, as well.


    • I think the less that a renovation is dependent on personal taste, the better. So, if you have a ratty lawn and you replace it with new sod, that will probably pay off more than putting in some elaborate gardening..


      • that will probably pay off more than putting in some elaborate gardening..

        Agreed. Disguising a drainage ditch as a sod covered French drain also comes to mind.


  2. The gift that keeps on giving.

    That and the Democratic debate footage showing all the candidates wanting to give free health care to illegals.


  3. Houston criminal justice system Darwin Award entry:


  4. The left has thrown in the towel on free speech and wants to be able to control it.


    • Both sides, but the left especially, seem to be agitating for tools—unconstitutional, authoritarian, and otherwise—or setting precedents that they don’t seem to realize will be universally available and not just awarded to them personally or their side generally. The desire to define the first amendment down, and the arguments they are using, can and will be turned on them with varying degrees of success.

      Same with the strategy of the whistleblower—-if this had been available for Obama with Fast and Furious, for example, to initiate an impeachment, it would likely have been used.

      It’s less a comment on Trump’s almost certain guilt (although guilt at a much lower level than the left is asserting) than the nature of partisan battles to come.

      I tend to suspect there has long been an awareness that certain strategies could be used to accomplish certain goals, but they weren’t because they could not be guaranteed to be single-sided. Or at least enough people realized that to keep it from happening. This seems to have been becoming increasing lost since Clinton’s impeachment.


      • I have been saying this for a while. This current rendition of the left is cut from the same cloth as the Jacobins and the fascists / communists / progressives from the first half of the 20th century. They don’t come around often, but when they do, they can create hella damage if left unsupervised. Only thing to do is use the system to frustrate them from trying to impose their utopia.

        The way they run culture is a model for how they would run society if we were dumb enough to toss them the keys.


    • George, what do you think about abandoning the Kurds in Syria?


      • I never believe WaPo’s first reporting. We’ll have to see. Also, the Kurdish autonomous area is in Northern Iraq so I’m guessing Kurds will migrate there. If we do “abandon” the Kurds, Trump will join a looooooonnnnnnngggggggg succession of US Presidents. In the end, if we can get our troops out ASAP, I’m all for that. I’d like a US President to end their term with less military engagement.


        • I don’t think your points are unreasonable at all. But I was pissed off at BHO’s “red line” SNAFU and I have not been favorably disposed to any American policy in Syria since. Here, I hope some assurances were obtained from Turkey and/or some help in terms of logistics will still be given to the Kurds. Or we help them peacefully remove to northern Iraq.


        • Suppose they don’t want to go to northern Iraq?

          One thing the US needs to accept is that other players have agency and agendas that don’t necessarily align with the US’s, even if they are technically allies against a common enemy like ISIS.

          The Kurds want a united Kurdistan that would consist of parts of Iraq, Turkey, and Syria. The existing governments in those countries don’t want that, and the general post World War II rule has been against adjusting national borders.

          How sustainable that’s going to be is an open question, but it’s more complicated than the US “abandoning” the Kurds.

          Saddam is gone, and I don’t necessarily think that getting rid of Assad will improve the situation in Syria, nor do I think that a liberal democracy in Syria is one of the actual possible outcomes.

          Given that, I don’t feel a need to have US troops picking sides in another Middle East sectarian civil war.


    • Or maybe the NYT has no intestinal fortitude. Assuming the NYT editorial board disagrees with Cotten why not just say so?

      Publishing a US Senator’s view seems like it reveals something about one segment of American thought, a segment the NYT [and I and apparently most NYT readers] think is dangerous. But Tom Cotten is not some drunk in a bar spouting off, he is a US Senator, so we all probably ought to know he thinks like this – it is said he wants to run for POTUS one day.

      Bad day for the NYT.


  5. Northam will never not be funny to me.

    Geoff Bennett sat down with Virginia Gov. Ralph Northam to talk about racial justice, where the governor says the burden of educating people on racism “needs to shift from people of color to people who look like me.”

    I can’t wait to be lectured by Mr. Blackface von KKKHood.


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