Jobs’ Surprise

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Jobs Recap

Employers added an above-forecast 235,000 positions in February, while measures of joblessness and underemployment improved, the Labor Department’s monthly report showed on Friday.

U.S. Jobs

NFP new

Headline job growth was right in the ball park our 228k estimate at 235k for the month of Feb. Despite the month over month miss in the AHE (average hourly earnings) number, the post Jan revisions shows year over year wage growth at 2.8%, above estimates of 2.7%. This is a strong number. Another piece of strength that seems to show this report in a positive light was that the unemployment rate fell even though there was another raise in the labor force participation rate, which ticked up to 63%. We also saw a Janet Yellen favorite, U6, a measure of employment slack, tick back down to 9.2% from 9.4%. After two positive revisions we are now averaging 209k job on three month average. A decently strong report in our view.

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Q1 GDP Outlook

NY Fed: 3.2%*
Atlanta Fed: 1.2%
Bear Traps: 1.7%
Street: 2.2%

Bloomberg

*FRBNY Staff Nowcast stands at 3.2% for 2017:Q1 and 3.0% for 2017:Q2.  This week’s news nudged up the nowcast for both Q1 and Q2 by about 0.1 percentage point each.  The small increase was driven by inventories, international trade, and labor market data.

Goldman Sachs analysts: now sees Fed raising in March, June, September (prior March, Sept, Dec).

– Rates seem to be dealing with the month over month miss in AHE and the strength in the headline figures such as participation rates. While we still think bonds are due to rally, given their oversold nature, especially in the longer end, this report did not give us the catalyst to do so.

U. S. 10 Year Bond Future

10s new chartsA Perfect Storm for Treasuries:  Bonds have been hit by perfect storm since the 10 year hit 2.32% two weeks ago. Hawkish Fed speak that was culminated by Yellen last week, has repriced March as meeting they will hike in. Asian data points, including China’s unexpected trade deficit number this week, also put pressure on bonds, as China’s imports are a large driver of global growth. Draghi and the ECB did not help proceedings with a more hawkish than usual Q&A session in his press conference. These data points have pressurized bonds in the near term.

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– Part time work for economic reasons fell in Feb as did the not in the labor force number. Yellen will be comforted by the fact that many of her slack indicators were better than expected in February.

– Private sectors such as manufacturing and construction were standouts in the report. Unseasonably warm weather probably helped construction jobs while the improved manufacturing sector has been seen in the recent ISM survey data points. Over the past three months manufacturing has now added 57k jobs. Nondurable goods firms added 18k jobs in February, more than in the prior nine months combined and the most for a single month since Aug ’91.  the only sector that was a drag was retail goods which makes sense given the current retail climate and post holiday moves.

– Aggregate payrolls growth was back up to 4.3% y/y in Feb, but on very soft comp.

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