Mish's Global Economic Trend Analysis |
| What Do Treasury Yields Say About Job Expectations, Inflation Expectations, and the Recovery? Posted: 03 Oct 2014 11:29 AM PDT Curve Watcher's Anonymous notes some interesting reactions in the treasury bond market following a string of good job reports. Today the jobs numbers once again beat expectations: Nonfarm Payrolls Rose by 248,000 and the unemployment rate fell to 5.9%. In seven out of the last eight months, jobs rose by over 200,000. Last month was the exception, but even then, the initial job report was revised up 69,000 to +180,000. In light of such purportedly strong data, especially with the Fed tapering ending this month and expectations across the board of fed hikes, yield on the long bond should be rising. The yield curve also should be steepening, at least if one believes in the recovery. Let's take a look to see what is actually happening. 30-Year Treasury Yield  Note: The above chart is off by a factor of 10. At the time I snapped that chart, the 30-year treasury yield was 3.143% Yield on the 30-year long bond shot up on the job report but is now in the red for the day. This is not what one would expect following a strong jobs report. Nonetheless, one day does not prove much. Let's take a look at the 5-year and 30-year treasuries over time. 30-Year and 5-Year Treasury Yields Since 2010  click on any chart for sharper image The long-term trend since 2010 has been a gentle flattening of the curves. Moreover, since the beginning of the year the spread between 30-year and 5-year treasuries has decreased significantly as the following chart shows in detail. Treasury Spread 30-Year Minus 5-Year  The above chart shows weekly closes. The last data point is from September 26. At the end of the day, the spread will be a bit lower than shown above. I currently have the spread at 1.396 (3.133 on the 30-year minus 1.737 on the 5-year), down about 10 basis points this week. Instead of the curve steepening as one would expect in a recovery, the 5-30 spread curve has been declining since hitting a peak of 3.0 in November of 2010. Conclusion The bond market does not think much of an ongoing recovery or future price inflation prospects, and neither do I. By the way, I occasionally get asked "Who is Curve Watcher's Anonymous?" The answer is me. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com |
| Nonfarm Payrolls 248K; Unemployment 5.9%; Employed +232K; Labor Force -97K Posted: 03 Oct 2014 08:47 AM PDT Initial Reaction The payroll survey shows a net gain of 248,000 jobs vs. an expectation of 215,000 jobs. Last month was revised up by 69,000 to 180,000. The six-month string of plus 200,000 jobs remains broken. Last month the household survey had a gain in employment of only 16,000. That number was not revised up. This month the household survey shows a respectable gain of 232,000, pretty much in line with the establishment survey. Nonetheless the household survey over the past six months has been much weaker than the establishment survey. One or the other is apt for some serious revisions. The labor force fell by 97,000. Those not in the labor force increased by 315,000. This follows last month's increase of those not in the labor force of 268,000. The civilian labor force rose by 217,000. It would take that increase in employment to hold the unemployment rate steady. Thus, the unemployment rate fell by 0.2% primarily on the basis of people dropping out of the labor force. All things considered, this was a pretty strong report. BLS Jobs Statistics at a Glance
Additional Notes About the Unemployment Rate
Please note that over the course of the last year, the working-age population rose by more than the number of people employed. In normal times, the unemployment rate would have gone up slightly. Instead, the unemployment rate fell from 7.2% to 5.9%. Over 100% of the decline in unemployment in the past year is due to people dropping out of the labor force, rather than strength in employment! September 2014 Employment Report Please consider the Bureau of Labor Statistics (BLS) July 2014 Employment Report. Total nonfarm payroll employment increased by 248,000 in September, and the unemployment rate declined to 5.9 percent, the U.S. Bureau of Labor Statistics reported today. Employment increased in professional and business services, retail trade, and health care. Click on Any Chart in this Report to See a Sharper Image Unemployment Rate - Seasonally Adjusted  Nonfarm Employment January 2003 - September 2014  click on chart for sharper image Nonfarm Employment Change from Previous Month by Job Type  Hours and Wages Average weekly hours of all private employees rose by 0.1 hours to 34.6 hours. This was the first increase in seven months. Average weekly hours of all private service-providing employees also rose by 0.1 hours to at 33.4 hours. Average hourly earnings of production and non-supervisory private workers was flat at $20.67. Average hourly earnings of production and non-supervisory private service-providing employees was flat at $20.46. Last month numbers appear to have been revised lower by $0.01 as last month I reported production and non-supervisory private at $20.68 and service-providing at $20.47. For discussion of income distribution, please see What's "Really" Behind Gross Inequalities In Income Distribution? Birth Death Model Starting January, I dropped the Birth/Death Model charts from this report. For those who follow the numbers, I keep this caution: Do not subtract the reported Birth-Death number from the reported headline number. That approach is statistically invalid. Should anything interesting arise in the Birth/Death numbers, I will add the charts back. Table 15 BLS Alternate Measures of Unemployment  click on chart for sharper image Table A-15 is where one can find a better approximation of what the unemployment rate really is. Notice I said "better" approximation not to be confused with "good" approximation. The official unemployment rate is 5.9%. However, if you start counting all the people who want a job but gave up, all the people with part-time jobs that want a full-time job, all the people who dropped off the unemployment rolls because their unemployment benefits ran out, etc., you get a closer picture of what the unemployment rate is. That number is in the last row labeled U-6. U-6 is much higher at 11.8.0%. Both numbers would be way higher still, were it not for millions dropping out of the labor force over the past few years. Labor Force Factors
Were it not for people dropping out of the labor force over the past several years, the unemployment rate would be well over 9%. Some of those dropping out genuinely retired. However, millions retired involuntarily. That is, they needed to retire and collect social security because they had no job and no income. Such folks are no longer in the labor force even if they want a job. The falling unemployment rate is very deceiving, painting a picture of improvement that simply does not exist. A gallup survey on the economy better reflects how the average Joe feels: 38% Think Economy Getting Better, 56% Say Worse. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com |
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