OK, so we’re through a huge data week (especially if I include last Friday’s GDP), and of course a big data day and here are my takeaways.
Save ADP (which doesn’t matter in the wake of NFP) and ISM manu, the data has been largely neutral to showing signs of weakening. As the market is feverishly writing down the chances of a March rate hike, we’ve benefited from a micro rally and find ourselves possibly marching back to some of the highs in price/lows in yield we saw in January. Not to mention that recently February has been a very bond friendly month, so we have that going for us as well, which is nice. #caddyshack #flowingrobes #thelama
Specifically when I look to the jobs report, I largely see more of the same: Bad components when the headline is strong, better components when the headline is weak. So as I suggested in Jan 14, again in Dec 15 and over the last couple months, I do not see a labor market that is nearly as strong as some would have you believe. Maybe it’s just a moment of total-consciousness but I’m thinking #figureslieandliarsfigure. Despite the headline beat, the downward revisions and nearly flat wage growth anchors this report as a weak report on balance. From this perspective, I’m full steam ahead in my dovishness. Sub 2 growth, meh jobs, sub 2 inflation do not scream that the Fed is way behind to me in the near term. #thedatadoesmatta
This said, the labor force participation increase is what is compelling me to write. I’d watch that number. Why? Well economic experts and political pundits would have had you believe those laborers were gone forever. And why not believe them. It’s been near a decade that we’ve been banging around all time participation lows. The math proves out, they are gone right? Or maybe #figureslieandliarsfigure.
Well something funny happened in January, 650k people came back. Is that a one off? Is that a singular pop in response to the anticipation that our government is going to be pro-business, pro-home grown labor? I’m not certain, but what I do know is that I’m going to be keeping an eye on this over the never several months. A trending increase in participation could foreshadow better things to come and ultimately turn what I read as a very bond friendly report into one that laid the ground work for some higher rates.
For now I’m thinking the recent range is intact. We have about 100 bps in improvement room I’m not sure we have enough to break through 2.3, but 2.65 is a safe top in the absence of something big. If we do break through it could lead to a lsubstnail upside. Notwithstanding, I’d look to lock at the lower end of the range and float the higher.
On a different note, another record month in January primers! In the face of some higher rates we did almost twice last years volume. #primers