A huge deviation on the Nov employment report from what had been expected; non-farm job losses were only 11K against estimates of -125K. The unemployment rate declined from 10.2% in Oct to 10.0%. Positive revisions in Sept and Oct reduced job losses by a combined total of 159K; Sept revised from -219K to -139K, Oct revised from -190K to -111K. Average hourly earnings were up 0.1%. The NFP job losses were the lowest since Dec 2007.
The huge improvement in the employment picture based on the data this morning has taken analysts by surprise. Hard to swallow it, but with the revisions in Sept and Oct it adds credence to the Nov data. Jobs are being created based on the report, but given the magnitude of the improvement, there will be naysayers through the day, questioning the veracity of the data. Argue about it, but it is what it is, and the bond and mortgage markets will not toss it aside as an anomaly.
Today’s report showed factory payrolls fell 41,000 after decreasing 51,000 in the prior month. The median forecast by economists called for a drop of 45,000. The decline included a drop of 6,300 jobs in auto manufacturing and parts industries. Sales of cars and light trucks increased for a second consecutive month in November after plunging in the wake of the government’s cash-for-clunkers incentive plan. Vehicles sold at a 10.9 mil annual pace last month, up from a 10.5 mil rate in October. Payrolls at builders declined 27,000 after falling 56,000 in Oct. Financial firms decreased payrolls by 10,000 for a second month. Service industries, which include banks, insurance companies, restaurants and retailers, added 58,000 workers after adding 2,000 in Oct. Retail payrolls decreased by 14,500 after a 44,200 drop.
It will take a few days for markets to sift out the significance of the surprising jobs report. When will the Fed begin to tighten interest rates? It’s unlikely the Fed will be in any hurry to buy into this report in their decision making, though interest rate markets will not likely completely ignore the possibility of sooner rather than later. The most likely scenario is that the Fed will continue to keep the FF rate close to zero for at least the next six months. Markets, however, will be well out front of the Fed’s moves whenever it occurs. Looking ahead: the FOMC meets again on the 15th and 16th of Dec. The normally short statement after the meeting will be even more significant than usual.
The rest of the day will keep rate markets on the defensive. Next week, Treasury has to sell $74B of notes and bonds; with today’s employment data pushing the dollar higher and uncertainty about where interest rates will trade, the auctions may seem less attractive. On the other side, rates have jumped substantially this week and may be supportive to continued strong bidding. With a jolt like today’s employment report, it will take a day or so for some kind of new “consensus” to emerge. It would seem at this point that the employment data is somewhat skewed–job declines are not likely over.
Market Minute information for December 4, 2009 provided by:
 Patsy Bailey Mortgage Banker |
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