US Monthly Jobs Report 5/5/17 Explained Simply for the Non-Economist

(below is an excerpt from the Keystone the Scribe website that chronicles the daily market action and events)

The consensus expectation for the US Monthly Jobs Report is 185K jobs. Last month was the disappointing and paltry 98K jobs that cannot even keep up with new entries into the workforce. The unemployment rate is expected to bump higher to 4.6% versus the current 4.5%. Private Payrolls are expected to come in at 180K jobs versus the prior 89K jobs.

The Average Hourly Earnings are expected to rise +0.3% month-on-month versus the prior +0.2%. Year-on-year is expected to rise +2.7% in line with the prior +2.7%. The wage data is more important than the headline jobs number and unemployment rate since it dictates whether overall inflation will occur going forward, or not.

The dirty little secret the Fed will never mention in public is that wage growth of +4.0% to +4.5% year-on-year is needed to sustain an inflationary trend. Even if wages increase to +2.8%, +2.9% or even +3.0% they remain a ways away from +4.0% and higher. This is why Yellen has always maintained her dovishness and hesitancy with rate hikes. If wages do move above +3.0%, however, that may lead to an acceleration higher. Inflation will remain elusive if wages remain below +3.0% year-on-year.

The Federal Reserve’s grand eight-year Keynesian experiment will be proven a failure if inflation does not materialize. Fed Chair Yellen will be clicking her heels with joy if wages outperform to the upside but will cry and search for a shot of booze if wages disappoint. If wages are weak, inflation is not on the come, Treasury yields will not move higher and the Fed will delay future rate hikes. If wages meet or beat expectations, inflation is coming and the Fed will look like geniuses proceeding with their plans this year for at least two more rate hikes with a growing economy.

The Average Workweek is expected at 34.4 hours a tiny tick higher from the prior 34.3 hours. The Labor Participation Rate is at 63.0%. The revisions are important in this morning’s data especially any adjustment to last month’s low 98K jobs. Traders are fixated on the wage data.

With the jobs report imminent, US futures are flat. S&P flat. Dow -23. Nasdaq -1. Russell -1. VIX 10.46. WTIC 45.05. Brent 48.03. Natty 3.22. Gold 1231. Silver 16.37. Copper 2.5115.

DAX -0.3%. CAC +0.1%. FTSE -0.1%. MIB +0.5%. IBEX flat. PSI -0.3%.

Euro 1.0967. Euro/yen 123.32. Dollar/yen 112.45. Pound 1.2940. Euro/pound 0.8475. Mexican peso 19.0613. Canadian dollar 1.3766. Dollar/yuan 6.9022. Indian rupee 64.375. Aussie dollar 0.7387. USD 98.90.

Treasury yields are; 2-year 1.31%, 5-year 1.89%, 10-year 2.36%, 30-year 3.00%. The 2-10 spread is 105 bips.

At 8:30 AM EST (1:30 PM London; 2:30 PM Frankfurt and Paris; 9:30 PM Tokyo), the US Monthly Jobs Report is 211K jobs and an unemployment rate of 4.4%. Both headline numbers beat their respective 185K and 4.6% forecasts. The prior month is revised lower from 98K to 79K jobs. Ouch. The previous two months are revised lower for a net 6K job loss. Jobs are averaging 185K per month this year. Private Payrolls increase by 194K jobs beating the 180K expected and above the prior revised-lower 77K jobs (prior number was 89K).

The unemployment rate is at 4.4% a decade low. If the economy was going like gangbusters, an economic phenomena should be occurring where the unemployment rate temporarily climbs instead of falling. When the economy is recovering and doing well, people become excited and start to actively look for work again. These folks coming back into the labor market are then once-again counted in the unemployment rate statistic which will send the rate temporarily higher.

The bump higher in the unemployment rate is typically a temporary phenomena that occurs as an economic recovery begins and proceeds forward. The rate will then begin trending lower again after a few weeks or months to reflect the better economic conditions going forward. Thus, this morning’s data showing a further drop in the unemployment rate is more indicative of a stagnant economy with businesses holding on to bare bone staff levels hoping for more work to come in the door.

Leisure and hospitality gain 55K jobs. Healthcare adds 37K jobs. Business and professional services add 39K jobs. Government jobs increase by 17K. Manufacturing is up a small 6K jobs. Construction gains 5K jobs. Note that the higher paying manufacturing and construction jobs lag the lower paying burger-flipping, bed-making, sheet-washing, bathroom-cleaning and table-waiting jobs. “Do ya want some fries wit dat burger?” And of course the government bureaucracy grows.

The Average Hourly Earnings are in line at +0.3% month-on-month but are up +2.5% year-on-year falling short of the +2.7% expectation. Yellen pours a shot of whisky into her café latte. Wages are stagnant which means inflation will remain subdued. Interestingly, however, the joyous headline numbers are sending the Fed Funds futures higher and a June rate hike is being priced in and expected.

Yellen is in between a rock and a hard place because market participants expect a June rate hike and more on the way but in her heart of hearts she knows that inflation will not appear since there is no wage inflation. Yellen gulps down her spiked coffee and signals to Charlie Evans to bring her the bottle. The 2-year yield is at 1.32%.

The Labor Participation Rate drops a tick to 62.9% so President Trump will quickly sweep this statistic under the BLS rug (less, not more, people are participating in the workforce). The U-6 rate is at 8.6% at levels not seen since November 2007. Average Workweek is in line at 34.4 hours.

US futures react calmly. It is one of the more non-eventful jobs reports in recent months. S&P +2. Dow -4. Nasdaq +6. Russell +2. VIX 10.36.

WTIC 45.27. Brent 48.22. Natty 3.21. Gold 1230. Silver 16.37. Copper 2.515.

DAX -0.1%. CAC +0.3%. FTSE +0.1%.

Euro 1.0981. Euro/yen 123.46. Dollar/yen 112.41. Pound 1.2953. Euro/pound 0.8476. Mexican peso 19.00. Canadian dollar 1.3764. Dollar/yuan 6.9022. Indian rupee 64.375. Aussie dollar 0.7395. USD 98.73. The US dollar is lower and euro higher.

Treasury yields are; 2-year 1.32%, 5-year 1.88%, 10-year 2.35%, 30-year 2.99%. The 2-10 spread is 103 bips (flatter yield curve than before the jobs data).

At 9 AM, S&P +4. Dow +1. Nasdaq +11. Russell +5. VIX 10.21. DAX -0.1%. CAC +0.6%. FTSE +0.3%.

Treasury yields are; 2-year 1.32%, 5-year 1.90%, 10-year 2.36%, 30-year 3.00%. The 2-10 spread is 104 bips.

WTIC 45.39. Brent 48.35. Natty 3.22. Gold 1229. Silver 16.33. Copper 2.521.

Euro 1.0971. Dollar/yen 112.60. Pound 1.2941. Mexican peso 19.0159. Canadian loonie 1.3758. Aussie dollar 0.7401.

At 9:30 AM EST, US stocks begin trading flattish. The SPX gains 5 points to 2394. The Dow is down 10 points to 20941. The Nasdaq Composite begins up 16 points, +0.3%, to 6092 only 10 points from another new all-time high. VIX 10.20. Market bears do not have any hope with volatility so low. USD 98.79.

REV is not looking pretty crashing more than -20% after reporting earnings at the opening bell. Revlon will need a lot of makeup to cover the bruises from the beating. NFLX +0.666%. TSLA +0.8%. TTWO +0.6%. GIS is up +1% after spiking +5% higher on takeover rumors. VIAB +2%. OLED +18%. Universal Display rallies from 50 last Fall to 106 today.

DAX +0.1%. CAC +0.666%. FTSE +0.3%. MIB +1.1%. IBEX +0.5%. PSI +0.1%.

WTIC oil 45.58. Brent 48.53. Natty 3.23. Gold 1228. Silver 16.28. Copper 2.508.

Treasury yields are; 2-year 1.32%, 5-year 1.89%, 10-year 2.35%, 30-year 2.98%.

Utilities are higher. XLU +0.5%. Financials are marginally negative. Energy stocks are recovering from yesterday’s losses. XLE +0.5%. APA +1.8%. OXY +0.9%. SLB +0.2%. MUR +1.8%. RRC +0.6%. XOM +0.2%. XOP +1.7%. OIS +1.3%. Tech and chip stocks are flat reflecting the flat broad indexes.

The BDFC IPO, a fracking company, is postponed ‘due to market conditions’. The fracking IPO’s are not doing well this year. FRAC debuted a few months ago and has moved from 22 down to 12. There are a lot of sucka’s holding that bag.

At 10 AM, markets are finding their footing after a happy jobs report beating on the number of jobs and unemployment rate but falling short with wages. SPX 2391. INDU 20929. COMPQ 6077. RUT 13989. VIX 10.25.

At 10:37 AM, SPX 2390. INDU 20911. COMPQ 6068. RUT 1386. VIX 10.24. European indexes are floating higher. DAX +0.2%. CAC +0.4%. FTSE +0.4%.

(the Daily Chronology of Global Markets and World Economics continues at Keystone the Scribe's website)