Monthly Jobs Report 1/8/16 is Robust 292K Jobs but Weak Wages

[Here is the real-time drama this morning during the Monthly Jobs Report. As always, the stock, bond and currency market theatrics are explained daily at the Keystone the Scribe site.]

About one-half hour before the jobs report at 8 AM EST, S&P futures are up +10. Dow +79. Nasdaq +28. European indexes slide negative across the board except for the FTSE hanging on to the positive side by a thread. Markets stagger sideways waiting on the US jobs report.

The expectation for the Monthly Jobs Report is 200K jobs with a consensus range from 170K to 250K. Last month was 211K jobs. The unemployment rate is expected to remain at 5.0%. CNBC business television is estimating 210K jobs and a 4.9% unemployment rate. An unemployment rate under 5.0% would receive attention.

The critically-important average hourly earnings are expected at +0.2% matching the prior month’s +0.2% showing continued modest wage growth. Fed Chair Yellen will be happy with a number at +0.2% or higher since increasing wages will create inflation and the Fed’s seven-year Keynesian experiment will be a success. If wages come in under +0.2%, Yellen has a big problem on her hands hiking rates into a weakening economy that may be sliding into recession. Credibility will be lost in the Fed if the wages are weak. Analysts expect wages to be substantively higher due to seasonality factors.

The labor participation rate was 62.5% last month remaining at shameful multi-decade lows. The average hourly workweek is expected at 34.5 hours the same as last month.

Minutes before the jobs data, S&P +18. Dow +142. Nasdaq +48. DAX +0.1%. CAC -0.2%. FTSE +0.5%. SMI -0.5%. Euro 1.0868. Euro/yen 128.61. Dollar/yen 118.33. Pound 1.4583. Mexican peso 17.7695. Canadian dollar 1.4092. Dollar/yuan 6.5928.

WTIC oil is up +1.2% to 33.66. Brent oil is up +1.5% to 34.26. Natural gas is up +1% to 2.41. Gold 1100.

US Treasury yields are; 2-year 0.96%, 5-year 1.62%, 10-year 2.16%, 30-year 2.94%. The 2-10 spread is 120 bips.

At 8:30 AM, the Monthly Jobs Report is a robust 292K jobs with an unemployment rate at 5.0%. The headline number is a blowout well above the 200K consensus. Last month’s jobs are revised higher to 252K jobs and the October jobs are revised to 307K jobs, a 3-handle, for a total upward revision of 50K jobs over the last two months. The jobs number catapults US futures higher.

Average hourly earnings are flat at +0.0% a miss. Analysts swing and miss at the forecast for wages. Yellen will be disappointed but for the here and now, markets are celebrating due to the headline number and the wage number is swept under the rug. The U-6 unemployment rate is 9.9%. The labor participation rate is 62.6%. The hourly work week is at 34.5 hours.

The jobs report is strange since jobs are running at nearly 300K per month but the economic data is weak and wages remain flat. In a hot job market, wages should be rising quickly and economic data should be painting a rosy picture. There is a disconnect; something is not quite right under the surface.

Many new jobs are part-time and low-paying jobs. Interestingly, those working part-time for economic reasons are increasing. Holiday support jobs are another big chunk of the gains but this work disappears with the new year. 1000's are hired to support the new Star Wars movie but these jobs will disappear quickly. Construction jobs benefit from the unseasonably warm winter thus far in the northern States which would account for a portion of the robust headline number. Professional and business services jobs, construction work and healthcare jobs lead the job numbers higher.

The strangeness of the jobs report is also illustrated with a comparison of GDP. The US growth rate is likely above +1% but not above +2%. Thus, a sub +2% GDP is a very sluggish and stagnant economy. How can the jobs number be so robust when growth and economic data is sick? Will growth ramp up strongly out of nowhere to verify the strong hiring numbers, or, will the job numbers deflate over the next two reports verifying the stagnant economy? The wage data is concerning so the strong bullishness in futures is a bit surprising.

At 8:32 AM EST, S&P +25. Dow +192. Nasdaq +62. US futures launch like a rocket. 10-year yield 2.19%. One minute later, S&P +28. Dow +221. Nasdaq +71.

At 8:35 AM, S&P +30. Dow +238. Nasdaq +76. DAX +1.4%. CAC +0.7%. FTSE +0.9%. SMI -0.2%.

At 8:46 AM, S&P +26. Dow +200. Nasdaq +60. DAX +1.1%. CAC +0.6%. FTSE +0.8%. MIB and IBEX are each up +0.7%. Euro 1.0822. Dollar/yen 118.50. Pound 1.4572.

At 8:57 AM, S&P +20. Dow +157. Nasdaq +47. US futures deflate off the highs; perhaps traders are reconsidering the weak wage data?

US Treasury yields are; 2-year 0.976%, 5-year 1.63%, 10-year 2.18%, 30-year 2.95%. Yields are well-behaved after the jobs report only rising a smidge higher across all durations over the last one-half hour. The 2-10 spread is 120 bips.

The new moon occurs tomorrow at 8:30 PM EST and stocks are typically bearish moving through the new moon. A robust relief rally is on tap instead but the finish this afternoon may prove interesting. After the opening bell, traders sell into the rally. European indexes end in a sea of red. Global markets begin the year with a negative week which is a bad omen.

Keystone the Scribe