August 6th, 2010 5:05 PM by Lehel S.
Always key; the employment data hit at 8:30 and overall it was disappointing for those that were sure we would see a big increase in private jobs The consensus was for an increase of 90K private sector jobs, as reported private sector jobs increased 71K. The headline non-farm payrolls were expected at -65K, as reported down 131K with 143K census jobs terminated. The unemployment rate remained unchanged at 9.5% against estimates of 9.6%; the unchanged unemployment rate implies more potential workers simply have withdrawn from looking for a job. In June non-farm jobs originally reported at -125K was revised to -221K; private job creation in June was originally reported up 83K, it was revised to +31K. Businesses have added new jobs for seven consecutive months, but the adds are small and suggest the economic recovery will drag slowly along.
The weaker than expected employment data sent stock indexes down and rallied the bond and mortgage markets. The initial reaction broke that solid resistance level on the 10 yr at 2.88% taking it to 2.86% by 9:00, mortgage prices improved 6/32 (.18 bp). While the rate markets have improved the magnitude isn't much given more confirmation that the job markets are still extremely weak; 8.5 mil lost jobs in the recession and are slow to recoup. Many of the lost jobs are unlikely to return as businesses have cut the fat to the bone and with consumer spending not rebounding new hires won't occur for a long time, possibly three more years to get back to acceptable employment levels.
Later this afternoon at 3:00 June consumer credit data will be reported; estimates are for a decline of $5B; our estimate is lower at -$8B. Normally an arcane series but these days with most debate centering on consumers it is a critical report for traders.
While interest rates are improving on the employment report, the day is long and subject to volatility. The stock indexes were hit hard on the 8:30 data but by the open the key indexes were off their lows. Overall however, the weak employment data will keep safety trades moving into treasuries and other high grade corporate bonds and into MBSs. Mortgages being originated now are some of the best underwritten loans seen in many years, investors should be taking note of that.