The Market Today
April Jobs Data Disappoint on Broad Weakness, Despite Continue Re-Opening of Economies
by Craig Dismuke, Dudley Carter
Nonfarm Payrolls Disappoint Despite Recovery of Leisure Jobs: The economy added a disappointing 266k nonfarm payrolls in April, severely undercutting growing expectations that the labor market recovery was accelerating. While the re-opening story remained evident, leisure payrolls grew 331k, there was widespread weakness in other sectors – perhaps an even larger concern than had the re-opening momentum temporarily slowed. Within the leisure sector, almost every sub-category showed improvement, led by a 187k recovery of food and drinking services jobs. Government jobs increased 48k as 37k public school teachers returned to work. Surprisingly, private school educators declined 20k. Elsewhere, the report was ugly. Manufacturing lost 18k jobs, retail shed 15k, transportation dropped 74k, and business services fell 79k. March’s payroll tally was revised down from +916k to +770k while February’s total was notched up from 554k to 622k. There remain 8.2 million payrolls lost since the pandemic began.
Unemployment Rate Drops as Participation Increases: In the household report, the unemployment rate rose from 6.05% to 6.09% as more people moved back into the labor force, +430k, than the number of newly employed persons, +328k. This pushed the participation rate up from 61.5% to 61.7% and the prime-age participation rate from 81.1% to 81.3%. According to the BLS release, “In April, 9.4 million persons reported that they had been unable to work because their employer closed or lost business due to the pandemic–that is, they did not work at all or worked fewer hours at some point in the last 4 weeks due to the pandemic. This measure is down from 11.4 million in the previous month.” Despite the continued improvement in re-openings evident in both employment reports, the overall story was quite discouraging.
Inventories, Consumer Credit, Mortgage Delinquencies: Later today, March reports on wholesale inventories and consumer credit will be released. Additionally, the MBA mortgage delinquency data for the first quarter is scheduled for release.
24 HOURS OF MARKET ACTIVITY
Shockingly Weak Payroll Report Sends 10-Year Treasury Yield Tumbling to Its Lowest Level Since Early March
The Dow gained 0.9% to notch a second consecutive record high Thursday and the S&P 500 rose 0.8% on gains across all sectors. Financials finished in the top spot while health care shares lagged, weighed down by losses in pharmaceuticals. Pfizer shares were particularly hard hit, dropping 2% a day after the White House announced plans to back a push at the WTO to waive patent protections on COVID-19 vaccines. The widespread strength, however, underlying equities’ gains followed another upbeat jobless claims report. While some reports have come up short of expectations, the primary message from this week’s economic data has been that the economic recovery continues at a solid pace. Despite the firmer tone for equities, Treasury yields hardly budged, with the 10-year yield moving up just 0.4 bps to 1.57% ahead of this morning’s jobs report.
Prior to the release of that report, U.S. equity futures were positive by 0.2% at 7 a.m. CT Friday morning, supported by a solid day of gains across Europe and most of Asia, and Treasury yields were essentially flat across the curve. A daily gain for U.S. equities could hand world stocks their first weekly rise since the middle of last month. Expectations for a million-job month in April echo Fed Vice Chair Clarida’s comments from Wednesday that the U.S. economy will be the “locomotive” for the global recovery this year, backed by trillions in fiscal stimulus and continued economic re-opening as more Americans are vaccinated. Global economic reports released on Friday included stronger-than-expected April PMIs from Japan and China and export data showing shipments out of China and Germany rose more than expected. At 7:29 a.m., the 10-year Treasury yield had drifted down 1.0 bps on the day to below 1.60%. That drift turned into a sharp downturn after the shockingly weak payroll report, sending the 10-year yield down as many as 10.5 bps in its aftermath to 1.46%, its lowest level since March 2nd. At 7:50, the 10-year yield was down 6.0 bps to 1.51%.
Fed Finds “Vulnerabilities Associated with Elevated Risk Appetite are Rising”: The Fed said in its latest Financial Stability Report that “prices of risky assets generally rose further” since the last report in November, “with the outlook buoyed by positive vaccine-related news, additional fiscal stimulus, and better-than-expected economic data.” In a discussion of vulnerabilities, the report said “valuations for some assets are elevated relative to historical norms even when using measures that account for [the low level of] Treasury yields. In this setting, asset prices may be vulnerable to significant declines should risk appetite fall.”
Atlanta Fed President Bostic said he’s unsure when the economic recovery will make the “substantial further progress” required for a tapering of the central bank’s monthly asset purchases, but said now is not the time to begin any formal discussions. Richmond Fed President Mester repeated comments from Wednesday that now is not the time to talk about tapering.
Dallas Fed President Kaplan said infrastructure spending could boost GDP over the longer term and sees “greater uncertainty” around how quickly supply bottlenecks will be resolved, one factor that he expects will lead to a temporary “surge” in inflation this summer. He again said he supports discussing the process of tapering asset purchases “sooner rather than later” and admitted there are side effects to the Fed’s monthly bond buying. He believes achieving “substantial further progress” will occur sooner than most expect and sees the required thresholds for a rate hike being met next year.
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