Big Jobs report shows weakening labor market

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Published Date 9/6/2024

The August employment data this morning added a lot to the view the Fed will go 50 bps when the FOMC meets on the 18th. The initial knee jerk reaction to the data pushed the 10 year note to its lowest level this year at 3.66% but didn’t hold, the note at 9 am 4.73%, unchanged from yesterday’s 3 bp fall. The job market is rapidly slowing, NFP jobs were thought to be +160K, reported at 142K and July NFP jobs were revised from 114K to 89K. Private jobs estimates +136K reported at 118K and July jobs revised from 97K to 74K. The key manufacturing jobs tanked in August, expected -2K declined 24K. The unemployment rate though did decline from 4.3% in July to 4.2% and average hourly earnings increased to 3.8% from 3.6% in July. The labor participation rate at 62.7% was expected and the same as in July.

The reaction in the FF futures market is a 55% chance now the Fed will cut by 50 bps in two weeks (September 18th) based on the initial reaction to the report, prior to the data yesterday the odds were 40%. Last evening Chicago Fed President Austin Goolsbee leaned heavily for stronger rate cuts coming. “The long arc shows inflation is coming down very significantly, and the unemployment rate is rising faster.” Given the more favorable inflation data and the less favorable unemployment data, “it is pretty clear that the path is not just rate cuts soon,” Goolsbee said, but multiple cuts over the next 12 months, as the Fed has projected in its most recent “dot plot.” He added he saw “more” warning signs about the cooling labor market. With the data this morning, he is spot on. His comments were last night, he commented he wouldn’t put too much on one month’s data (the July employment report was so weak it set off panic in stock indexes) this morning’s news adds to the view the job market is declining more rapidly than what has been the thinking. BUT, there is one fly in the soup, the increase in earnings that may worry the Fed over inflation fears.

The initial reaction to the 8:30 am report has faded, the 10 year note fell to 3.67%, at 9:30 am the note is back to unchanged yesterday with traders focusing on the average hourly earnings increased from 3.6% year/year to 3.8%, and month/month from 0.2% to +0.4%.

At 9:30 am the DJIA opened +214, NASDAQ -28, S&P +10. 10 year note at 9:30 am unchanged at 3.73%; FNMA 5.5 30 year coupon at 9:30 am +3 bps from yesterday’s close and +3 bps from 9:30 am yesterday. At 10 am FNMA 5.5 coupon -5 bps on the day and -4 bp from 9:30 am yesterday.

There isn’t any more scheduled data today, but Fed Governor Waller is on the schedule at 11 am.

Lot of volatility so far this morning. By 10 am all the euphoria is gone, the 10 year note after tagging 3.66% on the initial reaction, at 10 am +2 bp at 3.75%.

Source: TBWS

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