Today’s jobs report got a mixed reaction from economists and investors.
First, the scoreboard:
- Dow: 16,512.8 (-45.9, -0.2%)
- S&P 500: 1,881.1 (-2.5, -0.1%)
- Nasdaq: 4,123.9, (-3.5, -0.0%)
And now the top stories:
- U.S. companies added 288,000 nonfarm payrolls in April, which was much more than the 218,000 expected by economists. Furthermore, the March number was revised up to 203,000 from an earlier estimate of 192,000. During the period, the unemployment rate tumbled to 6.3% from 6.7% a month ago.
- Initially, stocks rallied and bonds fell. But that quickly reversed, with stocks sliding into the red and bonds spiking. The bond market rally has sent the 10-year Treasury yield tumbling to an afternoon low of 2.5717% from an intraday high of 2.6858%.
- Economists and traders argued that the strong headline labour numbers belied some of the more worrisome details. In particular, the labour force participation rate fell to 62.8% in April from 63.2%. This was the lowest level since 1978. “As the BLS noted, it is a bit puzzling why the participation fell so sharply in April,” wrote Bank of America Merrill Lynch’s Michelle Meyer. “Looking at the details, the participation rate decline was centered on younger (aged 16-24) and prime-age workers (aged 25-54), while the participation of 55yr+ workers was roughly flat. Although the drop in participation among younger workers was steep, the decline amongst workers aged 25-54 had an equivalent impact on the overall labour force participation rate given their larger share in the labour force. Note that the participation rate had been increasing in recent months, so April’s decline only reverses that trend.”
- UBS’s Drew Matus argued that we shouldn’t dwell on the LFPR change too much. “The participation rate has been between 62.8% and 63.2% for nine months and we see little reason to believe that the drop witnessed in April will be repeated,” he wrote. “Indeed, the expiration of long-term benefits is the likely reason behind the drop in the labour force and suggests that not everyone receiving long-term benefits planned to return to the labour market.”
- Today’s market action may have also reflected news outside of the jobs report. “We are seeing heavy de-risking in Europe and London ahead of the weekend as Ukraine Headlines get worse (London and Japan three-day weekend to boot),” said Stifel Nicolaus’ Dave Lutz in an email. Lutz also reiterated that the bond market rally could just be a result of just too many bond traders being on the short side. “CFTC data showed that short positions in 10-year note futures were near four-year highs.”
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