Morning Report: Mediocre Jobs Report

Vital Statistics:

  Last Change
S&P futures 4,399 13.2
Oil (WTI) 79.32 1.09
10 year government bond yield   1.57%
30 year fixed rate mortgage   3.20%

Stocks are higher this morning despite a sizeable miss in the employment report. Bonds and MBS are down small.

The economy added 194,000 jobs in September, which was a sizeable miss compared to the 475,000 street estimate. It was also well below the ADP number of 568,000. Most of the jobs growth occurred in retail, fulfillment and transportation. Leisure and hospitality also rose. Health care employment fell.

The unemployment rate fell to 4.8% which was a positive, however it was driven more by people exiting the labor force than it was by jobs growth. The number of people not in the labor force increased by 338,000. The labor force participation rate slipped 10 basis points to 61.6%, which is still about 1.7 percentage points below pre-COVID levels.

Average hourly earnings increased 0.6% MOM and 4.6% YOY and average weekly hours ticked up.

Overall, this report is a mixed bag. Economic bulls will point to the wage increases and falling unemployment rate, while economic bears will point to the anemic job growth and falling labor participation rate.

Ultimately this report probably won’t have an impact on the Fed’s tapering decision this year. The Fed is banking on supply chain disruptions working themselves out which means they won’t have aggressively tighten. While the economy was more or less picture-perfect heading into COVID, that was almost two years ago, so those conditions are becoming less and less relevant.

Shortages are more and more evident whether one goes to a Kroger or Home Depot. Anyone who has gone to a restaurant and waited 10 minutes for someone to notice sees the staffing shortage. These shortages are going to impact GDP growth at some point. This is going to present a conundrum for the Fed. A weakening economy should be flashing warning signs to go slow. That said, the dual mandate gives them two navigation stars: unemployment and inflation. And if you look at this mediocre jobs report, both indicators are flashing “tighten.” It will be interesting to see how they thread the needle going forward.

Jerome Powell’s term is up in 4 months, and since Trump nominated him in the first place, he is probably gone. Given the Administrations capitulation to its party’s backbenchers, I expect to see someone more dovish (and more hostile to the banks) to take the reins. I would imagine the Fed of 2022 will be a lot more dovish than the Fed of 2021. This would set up a repeat of That 70s Show, as supply bottlenecks and dovish monetary policy conspire to create the mood and economy of malaise.

The parallels are there: the huge expansion of government over the past 2 years is similar to LBJ’s Great Society expansion, especially if Democrats manage to pass their $3.5 trillion spending bill. The economic shock of COVID, with its concomitant supply shocks resemble the Arab Oil Embargoes of the early 70s. Finally, the lack of productivity increases are similar as well. We seem to be getting to the “pushing on a string” point of fiscal and monetary stimulus as well.

16 Responses

  1. De Blasio adopts Harrison Bergeron as a template for NY public schools.


  2. High speed rail continues to fail in California:

    “California high-speed rail faces new cost overruns

    Ralph Vartabedian
    Los Angeles Times

    The California bullet train is facing at least another billion dollars of proposed cost increases from its contractors, following a history of sharp cost growth on construction work over the last eight years, The Times has learned.

    The state’s High-Speed Rail Authority has mostly approved such increases in the past, and if it does so again, contractors could proceed with one of the biggest price escalations since bullet train construction began in the San Joaquin Valley.

    The continued cost increases — and the likelihood of similar problems surfacing over the next few years — are deepening the already difficult financial condition of the $100-billion project.

    The state has budgeted $22.8 billion to build a partial segment from Bakersfield to Merced. Originally, construction of the Los Angeles to San Francisco system was pegged at $33 billion. But the surging costs will probably force the state to dig deeper into its future funding just to complete that 171-mile leg in the valley.”


  3. The many talents of Hunter Biden….from drug addict to energy company executive to top selling artist, all in the span of a few years. Amazing what an election can do for some people.


Be kind, show respect, and all will be right with the world.

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

%d bloggers like this: