Bond yields will most likely decline if the jobs report comes in less than expected, as wage growth slows. The 10-year yield rose after the jobs report, even though wage growth is slowing, which is what the Fed wants to see, as bond traders took in the excellent data and sold bonds.
However, I like the trend of falling inflation growth rates – and that the labor market is still solid. And, as I’ve discussed for some time, we’ve struggled to break down 3.42% and head down.
So far, we are trending around these levels only. Mortgage rates broke below 6% for the first time yesterday, only to increase 0.20 basis points from 5.99% to 6.19%.
This is the details of jobs created this month. I’ll just put a little emphasis on any one jobs report, and things will revert to a trend of average growth. However, it is a solid report on most sectors of the economy.
I expect that we will return to the growth trend, and that, over time, job growth will slow as the slowdown in population growth limits us to a degree. We have to remember that it is one thing to get back all the jobs lost due to Covid-19, but essential labor has to make up for the time lost due to the brief recession.
Here’s a breakdown of the unemployment rate tied to education level for those age 25 and older.
- Less than High School Diploma: 4.5% (Earlier 5.0,
- High school graduate and no college: 3.7%
- Some college or associate degrees: 2.9%
- Bachelor’s degree or higher: 2.0%
Traditionally, those with less than a higher education have the highest unemployment rates during recessions and expansions. I always stress that a tight labor market is a good thing, and we want lower unemployment rates for every group – not just college graduates.
wage growth is freezing
On the labor front, there was some good news this week for those looking for lower rates. Both the Employment Cost Index and average hourly wage growth data in today’s jobs report showed a cooling in these data lines.
If these two data lines were booming higher, the bond market could have a different effect on the economy. However, we do not see the salary spiral that many feared.
The declining trend in wages noticeable in today’s jobs report is a big reason why the 10-year yield is not above 4.25% and mortgage rates are nearing 8%. The bond market knew that the wage spiral base was not happening.
Some believe that wages will be out of control by the end of 2022 – and the only way to slow wage growth is to destroy the economy and create high unemployment. Sorry, Charlie. This is not happening. Wage growth is slowing with a tight labor market.
federal Reserve Trying to reduce wage growth has made it important because people making more money is a bad thing for inflation. They believe the best way to do this is to create more pain, as they say, in the economy.
I’m not a huge fan of this premise, and what happens in a pandemic usually doesn’t last years after the pandemic is done with. The labor market is fine. Wage growth is slow even with higher job openings, lower jobless claims and 3.4% unemployment. You don’t need to crash the economy to bring down inflation after a global pandemic.
a solid report and week
While I do not believe we are starting a new trend of 500,000+ job gains per month, today’s jobs report surprised many, including me. I’m a bigot of the labor market who tells people we’ll have 10,000,000 jobs in this recovery, and we’re at 11,000,000 this month. I was stunned to see how large this print was.
We have two to three reports that come to light, and a few reports that beat the estimates, but it’s a Godzilla beat. I caution people in this expansion phase to follow the jobless claims data, which is still low 200,000, I don’t even have my Labor Fed Pivot until the four week moving average hits 323,000and our 4-week moving average is 191,750.
The labor market is fine, and wage growth is slowing, so we don’t need to create a recession to reduce inflation. All we need is more time and supplies. The best way to deal with inflation is always with supply because demand destruction affects future supply generation.
