Nonfarm Payrolls April 2018

As US trade representatives wrapped up fruitless discussions in Beijing and packed their bags for Washington, the Bureau of Labor Statistics released its much- anticipated April jobs report. The US economy added 164,000 jobs to kick off the second quarter. There were some revisions to the February and March figures, which added an incremental 30,000 jobs not previously reported. Interestingly, the unemployment rate ticked down to 3.9%, while labor participation dipped 0.1% MoM to 62.8%. The average workweek held steady at 34.5 hours, which is little changed YoY, and wages increased ~2.6% over the same period. Where was the strength? Manufacturing, construction, and mining (i.e. oil and gas) combined to make up ~30% of total jobs created in April. I suppose it doesn’t hurt to have WTI hovering close to $70/ bbl.

This is not a stellar report. Taken in tandem with the efforts of the Mnuchin-led task force on trade, growth prospects are beginning to dim. Scarcity of growth combined with rising short- term rates is a very difficult combination for financial markets- opportunities become limited and it becomes increasingly difficult to create value. We addressed our concerns regarding short-term rates and the leadership at the Fed in What’s In A Word, but to be fair, the rolling 3-month average of US payroll increases is ~208,000, forward looking estimates of economic activity appear strong and earnings season was extraordinary. The question in our minds is sustainability… particularly at this stage of the cycle. Unfortunately, we cannot rule out exogenous shocks.

TWP remains strategically neutral across assets, while maintaining a cautiously optimistic outlook.  

Market Outlook: Neutral USD, Neutral Duration, Neutral Equities