Stocks and Mortgage Bonds are lower after the Bureau of Labor Statistics (BLS) reported that were 372,000 jobs created in June, which was stronger than expectations of 250,000. There was a -74,000 revision to April and May, which tempers the optimism slightly.
While the headline looked strong, the household survey told a different picture. The Unemployment Rate remained at 3.6% for the fourth month in a row, as expected, but it is derived from the household survey, which has its own job creation component. Within the household survey, there were 315,000 job losses, which is a big discrepancy from the headline number. Even though there were job losses, the labor force decreased by 353,000, which is a similar number to the job losses, which is why the unemployment rate remained the same. It is important to note that it remained at 3.6% for the wrong reasons. The labor force participation decreased slightly from 62.3% to 62.2%.
The real unemployment rate is higher than 3.6%, but the U-3, which is what everyone looks at, removes individuals who are not actively searching for a job - There are almost 6 million people who are not being counted that “want a job” but have not looked in the last four weeks.
The U-6 all-in unemployment rate, which adds back all these individuals, decreased significantly from 7.1% to 6.7%.
Average hourly earnings were up 0.3% in June and are up 5.1% year over year. Average weekly earnings are up 4.2% year over year. When looking at average hourly earnings, if you remove the bottom quartile, earnings are up closer to 8% year over year.
After what appeared to be a strong Jobs report, Bostic said that he supports a 75bp hike later this month. This follows Bullard and Waller's comments, which also supported a 75bp hike. This strong headline job figure gives the Fed the “green light” to hike 75bp this month.
Mortgage Bonds are battling with an important floor of support at the 25-day Moving Average. If they break convincingly beneath it, there is a lot of room for the downside. While Bonds are down over 30bp currently, that is about half what they were down immediately following the Jobs report.
