Morning Report: Bonds cheer the weak jobs report

Vital Statistics:

Stocks are higher this morning after a weak jobs report. Bonds and MBS are up big.

The economy added 150,000 jobs in October, according to BLS. This was below the 180k consensus and a big drop from the downwardly-revised 297k reported in September. The labor force participation rate fell by 0.1% to 62.7% and the employment-population ratio fell by 0.2% to 60.2%. There is the possibility that the UAW strike is introducing some noise into the report, and we did see a big drop in manufacturing payrolls.

There has been a decent dispersion between the establishment and household surveys regarding the number of jobs. The Household survey, which takes into account seasonality and other considerations shows the economy added 150k jobs. When you look at the Establishment survey, which simply counts the number of people employed, the number of jobs fell by 350k. This divergence might explain why the official economic numbers say the economy is strong, yet it doesn’t feel that way. The red line is the Household survey while the blue line is the Establishment Survey.

The unemployment rate ticked up to 3.9% and average hourly earnings rose to $34.00. The increase in average hourly earnings was lower than expected as well.

Overall, this report shows the Fed’s tightening is gaining traction. The markets are definitely in “bad news is good news” mode. The 10 year and the 2 year bond yields dropped by 12 basis points on the report, and the Fed Funds futures dropped the chance of a December hike to 10% and bumped up the chance of a rate cut in March to 21%.

The services economy expanded in October, albeit at a slower pace than September, with the ISM report falling from 53.6 to 51.8. Production and Employment fell, although some services reported that labor costs remain an issue. Pricing pressures remain elevated, although the pressure does appear to be easing. Strikes are having an effect on labor costs overall.

Colorado is looking to impose a 27.9% tax on Airbnb rentals. Don’t know how many DSCR loans have been made in CO, but I suspect we will see some properties hitting the market.

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