Weak Job Numbers Reported by the BLS

This morning’s Bureau of Labor Statistics (BLS) showed a dismal labor market. In great contrast to the strong ADP report yesterday, the BLS estimated that there were only 130,000 new jobs created in the month of August. Even adding to the negativity were downward revisions to the previous two months that took away another 20,000 jobs. The one shiny spot in the overall report was a 0.4% monthly uptick in average hourly earnings. On a year over year basis, earnings increased by 3.2%, which is higher than the 3.1% previously reported. This shows that although job growth is slowing, employers are still holding on to their staff.

Private-sector job growth has been slowing in recent months. A look back over the past year broken into quarters shows a consistent decline in the pace of new hires. We expect to see a slowing in new hires before we see actual layoffs happen in the labor force. As employers go from adding staff to just holding onto their current staff, the next progressive step is for business owners to lay off their existing workforce. This path is clearly underway, albeit in the beginning stages. Eventually, I believe we will see the unemployment rate begin to tick higher. As has happened in the past, and 100% of the time, immediately following the unemployment rate hitting a cycle low it is followed by a sharp increase. There is no reason to assume this time will be the first that we avoid this path.

Mortgage bonds are back to being stuck on the same trading channel that they have been trading within for well over a month. Since bonds will soon be approaching the top of the channel, a locking bias is the safe play.