Stocks and Mortgage Bonds are both moving higher so far this morning after a the June Jobs Report showed the unemployment rate rising to 4.1%, trigger a recession signal called the Sahm rule.
BLS Jobs Report
The Bureau of Labor Statistics (BLS) reported that there were 206,000 jobs created in June, which was pretty close to estimates of 190,000 to 200,000. There were big negative revisions to the previous two months totaling 111,000…And last month’s reading of 272,000 was revised lower to 218,000. April was revised lower from 165,000 to 108,000, which is a completely different story. Remember, May will get revised once more and will likely be even lower.
The faulty Birth/Death model added 59,000 jobs to the headline figure – without it we would have only seen 147,000. This is where the BLS tries to figure out how many businesses came online vs offline and how many jobs that accounted for.
Leisure and Hospitality only added 7,000 jobs, and the majority of the gains came from Government, which added 70,000, and Healthcare/Education, which added 82,000 jobs combined.
Average hourly earnings, which measures wage pressured inflation, rose 0.3%, which in line with estimates. Year over year, average hourly earnings fell from 4.1% to 3.9%.
Average weekly hours worked remained at 34.3. Average weekly earnings rose 0.3%, with the year over year figure decreasing from 3.8% to 3.6% year over year.
Remember, there are two surveys within the Jobs report, the Business Survey and the Household Survey. The Business Survey is where the headline job creation number comes from the and the Household Survey is where the unemployment rate comes from.
The Household Survey has its own job creation component, and it showed only 116,000 job gains, which is much lower than the headline survey. Additionally, the labor force increased from 277,000…and the combination of the two made the unemployment rate from 4% to 4.1%...the highest level since November 2021.
Furthermore, the SAHM rule has now been triggered, which portends a recession ahead with a high degree of accuracy. The three month average of the unemployment rate is now 4%, which is 0.5% above the low over the last twelve months, which was 3.5% back in July.
Looking deeper at the 116,000 jobs created, we lost full time jobs and gained part time workers, which has been a theme we have been seeing for quite some time now.
Technical Analysis
Mortgage Bonds have broken above the 25-day Moving Average and are now testing the next ceiling at 100.628. The 10-year has broken back beneath its 200-day Moving Average and has room to move lower until reaching 4.25%.
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