With attribution to the WSJ’s Jon Hilsenrath:
The Labor Department’s April jobs report tells several different stories about the state of the labor market and for now likely leaves the Federal Reserve’s policy settings unchanged. The stories, in brief, go like this: A robust upturn in job growth. Payrolls up 288,000 with upward revisions to previous months. That is the unambiguously good news in today’s report. Fed officials are likely to see this as confirmation of the story they have been telling about the economy. They saw the first-quarter slowdown in growth as partly driven by unusually harsh weather and have been expecting an upturn. They are looking for faster economic growth in 2014 than in 2013 and continued improvement in the job market. The headline payroll number confirms this story, and assures officials will keep reducing their bond-buying program, which was launched in 2012 to give the economy an extra boost. They feel they need to reduce the booster fuel and this confirms that view.
Disappointing undercurrents for households. While firms ramp up hiring, workers continue to behave in confounding ways. The jobless rate declined to 6.3%, but it was driven by continued worker exodus from the labor force—people holding or actively seeking jobs – which contracted by 806,000 individuals. This exodus is reducing counts of the unemployed and holding down the unemployment rate. The labor force participation rate – the share of adults in the labor force—tumbled to 62.8% of the working age population, from 63.2%. This included an important drop in participation among prime-age workers, between 25-54 years old. Prime-age participation had been rising since October, a hopeful sign that a stronger economy was drawing individuals back into the labor market. But most of that gain was reversed in April, falling from 81.2% of the population to 80.8%. A stronger economy should be drawing prime-age workers into the labor force, but today’s report was a mark against that notion.
Fodder for Fed debate about slack and inflation. Fed officials are deep into a debate about whether the falling jobless rate is sign of reduced labor market slack and looming inflation pressure, or whether a shadow contingent of part-time workers, long-term unemployed people and labor market dropouts will hold inflation down and warrant continued Fed efforts to spur stronger growth. Janet Yellen has come down on the latter side of this debate. Today’s report amplifies the arguments but doesn’t resolve them. The falling jobless rate certainly argues for less slack, putting pressure on the Fed’s policy doves to justify their call for low rates far into the future. The jobless rate, at 6.3%, is already within the 6.1% to 6.3% band that the Fed forecasts for year-end. Yet while the jobless rate dropped, the number of people working part time who wanted full-time jobs increased by 54,000. And average hourly earnings were flat, a sign wage pressure is absent.
A productivity problem. This is more evidence of an underlying productivity slowdown in the U.S. economy. More hiring plus slow economic growth equals less productive workers. That is a problem. Productivity growth is the lifeblood of rising living standards. For the Fed it presents a conundrum. Slow productivity growth suggests slack really is getting eaten up quickly. That argues for higher interest rates sooner than planned. The Fed misjudged a productivity slowdown in the 1970s and inflation took off. But low productivity growth also suggests that interest rates don’t need to go very high once the Fed starts raising them. That is because low productivity is also associated with low inflation-adjusted interest rates.
BOTTOM LINE: The Fed keeps reducing its bond purchases. The debate on the timing of interest rate increases intensifies but doesn’t get resolved. **NOTE TO FED SKEPTICS: The drop of the jobless rate to 6.3% is going to launch outcries of Fed inconsistency. From December 2012 until this past March, the Fed had been assuring the public it wouldn’t consider raising interest rates as long as the jobless rate was 6.5% or above. It dropped that unemployment threshold in March. The skeptics will say the Fed had promised rate increases when joblessness dropped to 6.5% and now it is abandoning that promise. But this is simply not true. Officials all along said 6.5% wasn’t a trigger for rate increases; it was a guidepost. The only thing it would trigger was discussion about when to move. Now that we’re there, the discussion is engaged, but it was never a promise of action.
Snippets: The Russians aren’t letting journalists cover what’s going on in Eastern Ukraine… Actually many journalist have been arrested yesterday by pro Russian militias – early morning reports that the separatists holding / delayed journalists, leaving them free to spin it the way they will. Barry shared; There may be an absence of folks wanting to hold longs over the weekend with the Russian situation so volatile. stephen agrees, plus Japan and parts of EU closed Monday. Raphael also noted; possible, and plus buyers have won the week, so profit taking is a consideration. It can’t be good if people that are defending their country, countrymen and being picked apart by a superpower – that is choking off the United Nations and journalists from overseeing the crisis.
To the extent anyone is looking for the week of May 5 to provide narrative-shifting catalysts, they will likely be underwhelmed. Other than then Yellen’s testimony (Wed May 7), the ECB meeting (Thurs May 8, and more earnings, the calendar of scheduled events will stay quiet for another week.
Bullish: “company surveys are now clearly above anything seen in this expansion” – cyrus.
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Today started with a jobs data light 300k ESM traded on Globex, trading range was 1875.50 – 1886.00. Yesterday’s regular trading hours (RTH’s), pit session trading range was 1871.50 – 1882.75 before settling at 1877.75, down 1 tick. NFP checked in 288k, well above expectations and even above some ranges given 190,000 to 279,000, while the unemployment rate checked in at 6.3% vs exp of 6.6%. BLS jobs data - 1892.50 traded on last month’s NFP before flopping. Lower highs mean anything?
Today’s RTH’s, pit session opened unchanged at 1877.50 – 1878.30, william_blount (08:36) le spille en MOTION must clear out 1882.5 OE ELSE (08:42) no CASH HIGH vs yesterday – cash dont lie – futures DO. mts2 (08:40) todays mini 1885c have already traded 15k times * 28 delta.mts2 (08:49) Russia requesting a UN security council meeting for today.Trading range during the first 15 mins, 1875.50 / 1882.50 and extended the upside to 1883.50 by 9:00. Sam_E (08:59) [NDX] has lost europes close yesterday, todays open and the european pivot. watch out. yesterdays open trying to rescue it. william_blount (08:59) naz needs to break the mid p.m. LOW taint done yet 3577.25 on that naz crap. At 9:00 Factory Orders Mar: 1.1%, exp 1.5%, prev 1.6%, range 0.2% to 2.1% and the indices caught a small bid. Jim_M (09:08) +830 advn/decn/ breadth +2.69:1 NYSE / 1.33:1 NASD – all the tics close in positive range so far – looking to go flat on my 1875.50′s at or near 1885.50 for the 10 handle rule. Jim_M (09:14) +1040 advn/decn and the S&P printe 1885.50 high at 9:13, exactly 10 handles off the low before quickly reversing. Longs jumping ship with failed break of new highs, headlines turn the risk on equities lower as the [DJIA] dropped a quick 100 points from its highs. Ukraine Defies Putin as Troops Move Against Separatist Rebels Ukraine sent armored vehicles and artillery to retake Slovyansk, a stronghold for pro-separatist forces, defying president …The S&P drops 13 handles to 1872.50 – retesting / holding 1873.25 area = THE NEW YELL from the Wednesday’s FOMC decision = last price trading on the FOMC / Yellen announcement. cyrus (10:10) UPDATE: CNN retracts report saying 2,700 killed in Afghanistan landslide; TOLO News reports 260 confirmed dead.
Chicagostock May 2013 peak high vs Today http://stks.co/f0ZUQ
Well, can someone tell me the midday low? Oh, I got this one > 1872.50 … yes, that 1873.25 area was retested and held since 10:00ish. iceChat (14:11) paper seller … 4k 1880, 11k 1890 & 8k 1895 calls on the screen. iceChat (14:43) chatter – on the screen … looks like someone that has been holding long May 1790, deep in the money calls is selling now 4k have traded. this would put selling pressure on the emini futures as the market makers buy the calls and sell futures (to hedge).
The MrTopStep imbalance Meter, MiM, showed a modest buy imbalance of $130Mbefore growing to $585Mgoing into the cash close. The futures were trading 1874.90 area on the cash close before settling at 1874.40, down 3.3 handles on the day. E-mini volume on the day was 1.7k with the [VIX] going out at 12.91, down 34 ticks on the day as the major averages close modestly higher on the week. Hmmm … that makes me wonder … bears need to convert? 1873.25 and the faster they get to 1857 the better. Chicagostock would love a gap open below today’s range sunday night. Just saying.
Japan & parts of EU closed Monday.
Eco calendar: http://www.investing.com/economic-calendar/
Posted Thursday: Parker what do you make of the bond rip? From what i understand, theres a lack of supply of new paper driving up the securitized markets, combined with chase for yield and growth slowing and you get the bond rally we’ve been having – theres also convexity to bonds prices at low yields which causes asymmetry, better to be long. 30s havent been able to get thru the 20 dma since end of march – been chopping btwn 20dma and 2% bollinger band. I think the jobs number will be fine, what happens after that is anyone’s guess – parker_schwartz.
[DJT] humming along … Total US rail traffic +8.2% vs +6.3% last week, up 35 of past 40 weeks. Carloads +9.5% vs +5.1%, up 9 of past 10 weeks.
17 Facts To Show To Anyone That Still Believes That The U.S. Economy Is Just Fine http://bit.ly/1jjCGHO
‘Posted Wednesday: Tiptoeing’ past today’s Fed statement: Art Cashin of UBS Financial Services tells CNBC’s Bob Pisani why the June Federal Reserve meeting could see some real “action.”http://www.cnbc.com/id/101629269