Hang on for the ride…

A whopping 288,000 jobs were reportedly gained in the month of April, according to this morning’s Bureau of Labor Statistics (BLS) Job’s Report.  While the market was expecting about 210,000, this came as quite a surprise.  In addition, the unemployment rate surprisingly fell to 6.3% from 6.6%.

Both of these announcements seemed great.  However, a deeper look into the “Why” reveals some holes in the report.  To begin with, the 288,000 new jobs created almost entirely came from what is called the “Birth / Death Ratio.”  This is a way for the government to model the businesses being created vs. closing.  When it takes the ratios between these, they estimate the number of employees were “likely” added or subtracted from the workforce.  Therefore, the numbers reported will be subject to larger revisions down the road.  Further, when you look at the household survey, which is where they make calls to households and then statistically come up with an overall average, that report showed a LOSS in jobs of 73,000.  This is a huge spread from the 288,000 jobs created as shown by the business employment survey.

In looking at the unemployment rate, these figures are determined by the household survey method where they poll households to gather data.  Well, if that survey led to a .3% reduction in the unemployment rate, then how could the calls to households have determined that there was a net job loss of 73,000?  It is because it found that 803,000 workers actually left the workforce!  Therefore, when you take the total number of people unemployed and divide that into a smaller number of people in the workplace, it will actually reduce the unemployment rate.  There are now more jobs available relative to the number or workers available to work.  And that, my friends, is how you can have a lower unemployment rate even when there is a net job loss in the marketplace.

Now why would 800,000 + workers leave the workforce?  Although difficult to say for sure, an over inflated stock market certainly helps.  As those who are approaching retirement age look at their 401K statements and see outrageously high balances, it provides further confidence for them to take the risks associated with leaving the workforce.  Now if we see another drop in the stock market, many of those who thought they could retire may find themselves back in the job market.

Mortgage bonds have been all across the board so far today, but are now gaining strength.  With this report behind us, we will have a floating bias.  The charts are looking stronger, showing the potential of improving bond prices in the near term.  Next week has fewer news reports.  This could provide a bit more stability in the market, at least for a few days.