Only 126,000 new jobs in March

By Louis S. Barnes                                                         Friday, April 3, 2015      The last line in last week’s column: “For complete chaos, and canceling all rate worry above: a weak report on jobs.”      And chaos it is! Masked until Monday by today’s holiday, but the ground is moving now. Only 126,000 new jobs in March, the prior two months revised down by 69,000, slightly declining hours in the workweek, overtime flat... this is the growing strength the Fed needs to pre-empt?      Stocks are closed, but bonds are trading: the US 10-year T-note at 1.81%, down from 1.98% on Monday, and all technical forecasting models suggest a re-test of February’s temporary two-year low at 1.65%. The next visit may not be so temporary.      But, be very careful here. Rising wages are much more important to the Fed than payroll numbers. At 5.5% unemployment the economy is already in the historical danger zone. Average hourly earnings in March rose 2.1% year-over-year, but last month climbed 2.8%.      Chair Yellen delivered a magnificent speech on March 27, one of the best-ever by a Fed leader, thinking out loud through all the reasons the Fed should liftoff from 0%. Buried and brief on page 3, reasons not to move:      “I would be uncomfortable raising the federal funds rate if readings on wage growth, core consumer prices, and other indicators of underlying inflation pressures were to weaken, if market-based measures of inflation compensation were to fall appreciably further, or if survey-based measures were to begin to decline noticeably.”      Today’s report does not show weakened wages, nor in other reports any weakening of inflation. We did see a weaker ISM manufacturing survey for March, down to 51.5 from 52.9, obviously hurt by a stronger dollar. Fed Vice Chair Fischer’s statement last fall that “Falling oil prices are an unambiguous benefit” has proven wildly overconfident, the drop not yet stimulating consumer spending but currently shaving jobs.      On the happy side we have a slowly but consistently improving housing market, sales up 12% year-over-year, and prices rising at double the rate of inflation.      On net: presumption that this jobs report has intercepted liftoff in June or in September, or in 2015 is very premature. Specifically to gambling on mortgage rates, these extremely low levels are held down by overseas central banks, which the Fed sees as artificial -- not a signal of US weakness, and possibly requiring Fed interception.      For now, rejoice in low rates. And also in an unusual cluster of other good news.         First, little noticed, the WSJ reported this week that the Fed in 2014 began to lean on bank boards of directors to do their jobs. To supervise management. Not just take fees, get their buddies on other boards, back-scratch executive and their own compensation, take five-star junkets -- and when their ward institutions bring down the global financial system, sniff in indifference. Fed supervisors are leaning hard, one director at a time, especially on previously inert and crony “independent” directors. I have believed ever since 2005 that bank-director indifference to bank conduct was the primary failure leading to the meltdown. The Fed is late, but hooray anyway.      Next, Nigeria replaced its crooked head of state in a non-violent election. Good luck to Muhammadu Buhari in his promised fight against corruption and Boko Haram. Nigeria is 178 million souls today, quadrupled in 50 years, and in another 30 years will be more populous than the US.      Then the Iran deal. In the last two weeks as the negotiation deadline drew near and passed and revived, financial markets traded on the outcome. When the deal looked dead, stocks and rates went down, risk up; alive again, stocks up and rates up. Nobody knows how the deal will turn out, but markets like the fact of six powers talking.      Last, some would argue whether good or bad news, but we can hope in the next two weeks to get a resolution to Greece. If they are out, then quick downward pressure on rates here, fearful of chaos (that word again...). If they stay in, nobody will care. For my own part, an end to the story would be a blessing. ------------------------------------------------------- 10-year T-note in the last week, although NOT including semi-closed trading today. As above, off the bottom of this chart at 1.81%. The sharp drop on Wednesday followed the weak ISM survey, and the rise on Thursday coincided with the good news from Iran talks.