If you were looking for a reason to be bullish, this jobs report is it
The jobs report has just come out and the numbers are amazingly bullish.
- Non-Farm payrolls were up 243K
- Unemployment rate was 8.3%, down from 8.5%
- Underemployment rate (U-6) is now down to 15.1%
- Household survey showed over 800K gains in January
I will be adding the analysis to this post as I parse the data. Come back here for more as the analysis is completed.
Here’s my first blush thinking: this is a very risk on number. 243,000 jobs is starting to be a real number. The bulls will run with this and take it to be a sign that the turn in the U.S. economy has finally happened. Remember, we saw 10% unemployment and 17% underemployment at the depths of the recession, so the numbers are legitimately well off the trough despite continued sluggishness in the overall economy.
Looking at this holistically in conjunction with Obama’s mortgage refi plan and Bernanke’s zero interest rate policy (see More on the Fed – Obama stimulus plan), and the increase in manufacturing, one has to see the data now coming out of the U.S. as very favourable for a risk-on environment and supportive of stocks generally. On the other hand, this is bond- and interest-rate-bearish.
UPDATE 852: The usual biased bears are focussing on the negative data points, like for instance that the labour participation rate is at a thirty-year low. So what? yes, this is the secular problem to remember, but it is irrelevant as far as the overall import of data goes. Other bears are saying the problem with the data is it doesn’t show that "many new jobs pay less than old ones." I say, "Bullshit". The jobs report does do this via the hourly wage measure.
Again, you can’t let bias alter your view of the facts. I think the economy is at stall speed but I am perfectly willing to accept the possibility that we are moving into a higher economic trajectory. Be very attuned to both bullish and bearish bias in the coverage of this report because this one is a very big deal.
UPDATE 859: The policy implications are also worth considering. The talk about QE will subside. There will be no Fed balance sheet expansion. But I have been telling you all along that the Fed is focused on rate easing and not quantitative easing
UPDATE 902: Another interesting factoid. The annual revision was the first upside revision to previous data since 2006. That says that the birth-death estimates for estimation of new firms created for 2011 and the ones now coming out for 2012 are probably too low.
UPDATE 907: Also see: Average Mortgage Rates Ease Setting New Record Lows
- 30-year fixed-rate mortgage (FRM) averaged 3.87 percent with an average 0.8 point for the week ending February 2, 2012, down from last week when it averaged 3.98 percent. Last year at this time, the 30-year FRM averaged 4.81 percent.
- 15-year FRM this week averaged 3.14 percent with an average 0.8 point, down from last week when it averaged 3.24 percent. A year ago at this time, the 15-year FRM averaged 4.08 percent.
- 5-year Treasury-indexed hybrid adjustable-rate mortgage (ARM) averaged 2.80 percent this week, with an average 0.7 point, down from last week when it averaged 2.85 percent. A year ago, the 5-year ARM averaged 3.69 percent.
- 1-year Treasury-indexed ARM averaged 2.76 percent this week with an average 0.6 point, up from last week when it averaged 2.74 percent. At this time last year, the 1-year ARM averaged 3.26 percent.
Again, the full-on press for reflation is going to have some impact.
UPDATE 911: One thought on the labour participation rate is that it reflects cyclical, structural and secular factors. The cyclical factors is the weakness from a stalled economy. The structural factors come from the need for the economy to re-allocate human and investment capital after a massive boom and bust in the mortgage-housing-finance complex. The secular factor is the one we most often overlook. baby boomers are now starting to retire and they are a large cohort. That means there is a natural decline in the labour participation rate baked into their departure from the active labour market.