Weak Jobs Data Shakes the Fed: Bonds Look Up!
Mortgage Bonds are opening slightly higher following a much weaker-than-expected Bureau of Labor Statistics (BLS) Jobs Report. While the initial reaction was muted, the details are so negative they should convince even the most hawkish Fed members that the labor market is softening. This is good news for rates.
BLS Jobs Report: A Deep Dive into Weakness
The report released data for both October and November, showing major red flags:
- Job Creation:
- October: Showed 105,000 job losses (heavily influenced by government layoffs).
- November: Showed 64,000 jobs created, slightly stronger than expected (45,000).
- Massive revisions: The previous two months were revised heavily downward (August to -26,000 and September to 108,000).
- The “Birth/Death” model: The BLS added a questionable 413,000 jobs in October via this model, which attempts to capture small business gains. Since other reports show small businesses weakening, this huge addition appears inconsistent and may be revised out later. Without it, job losses would have been over 500,000.
- The only strong sector: Health Care continues to be the primary engine, adding 46,000 jobs in November. Without Health Care, job growth for the entire year would be virtually flat.
The Unemployment Rate Jumps
- Unemployment Rate (U-3): Rose from 4.4% to 4.6% in November. This marks the fifth straight month the rate has increased since July.
- Underemployment Rate (U-6): Jumped from 8.0% to 8.7%, the highest level since March 2017 (excluding COVID).
- Job quality: 983,000 full-time jobs were lost and replaced by 1,025,000 part-time jobs, highlighting weakness beneath the headline.
- Wage inflation cools: Average Hourly Earnings rose only 0.1% month over month, and year-over-year wage growth fell from 3.8% to 3.5%.
Bottom line on jobs: Beneath the surface, this report is extremely weak and should keep the Fed in a more dovish posture, supporting the Bond market as the details are digested.
Consumer Spending & Housing Confidence
- Retail Sales: Flat in October (weaker than expected). While Core Retail Sales (excluding autos and gas) rose 0.8%, the broader trend suggests consumers are pulling back.
- NAHB Housing Index: Builder sentiment rose for the third month in a row to 39. While still in contraction (below 50), Future Sales Expectations rose to 52, showing optimism that rates will fall.
Technical Analysis & Strategy
- Mortgage Bonds (MBS): Starting to break above overhead resistance at the 25 and 50-day Moving Averages. If this holds, there may be room for another 20 basis points of upside improvement.
- 10-Year Treasury: Slightly lower but still rangebound, with resistance near 4.20% and support near the 100-day Moving Average (~4.15%).
Strategy: Continue floating. The weak jobs report should provide momentum for Bonds to break higher.
