Nonfarm Payrolls April 2019

The lowest unemployment rate in 49 years! Now, that’s something. The official measure of unemployment in the US ticked down to 3.6% in the month of April. According to the Washington-based BLS, this is the lowest unemployment reading we have seen since December 1969! What are the attributes of the Bureau’s latest report? Assists go to April’s strong headline jobs figure, 263k, and a slight decrease in the labor force participation rate. Labor force participation in April ticked down 0.2% from March’s reading of 63%, while a broader measure of unemployment, U6, held steady at 7.3% mom. American workers earned 3.2% more per hour compared to this time last year and the average work week was little changed at 34.4 hrs. Noteworthy in the wage data is that non-supervisory employee hourly earnings suggest a quickening pace of upward price pressure- I hesitate to use the word, inflation, in this environment. There were some minor revisions to the February and March figures which tacked on an additional 16k jobs, cementing April’s report as a strong reading on the US employment situation.

In surveying the US macroeconomic landscape, we would call your attention to last week’s GDP report. We have highlighted the inventory issue in previous writings, and it is important to note here that certain dynamics have changed in both the domestic economy and global economy at large. In short, we would be remiss in ignoring them. So, why are we not joining the camp of detractors? To be sure, inventories and export data are volatile components particularly with all of the uncertainty around trade. Further, softening business and consumer spending are not exactly positive developments for anyone seeking to sustain an economic recovery. However, we would suggest that the GDP report, much like today’s payroll report, has something for everyone to like- weak US manufacturing data per the Institute of Supply Management and sluggish Chinese PMI’s notwithstanding. In an effort to simplify, we would posit that the context of an economic report can be nearly if not more important than the facts and figures themselves. The posture of central banks has changed significantly since the end of 2018, trade tensions appear to be cooling, and the UK-EU saga is on the back burner for now. These are all significantly positive developments for financial markets, but to be fair, they can all change rather dramatically quite quickly.

Speaking of dramatic changes, enter Fed Chairman Jay Powell. Poor Jay… he had another bad day in front of the cameras. Our Fed Chairman just can’t catch a break or maybe it is just that he’s always caught on the wrong foot as it relates to the markets. In summary, Mr. Powell botched another press conference Wednesday and left markets more uncertain regarding the dovish-hawkish lean of the Federal Reserve. I think it is safe to say he lost another ounce or two of credibility, not that he has much to spare in our view. After what amounted to a ludicrous Q4 in terms posturing and “guidance,” Jay insists a press conference must accompany each FOMC meeting. Well, Jay’s scorecard behind the microphone is questionable at best. Wednesday’s market reaction was telling- the curve initially flattened, then steepened, then rates rolled over altogether (not exactly what one wants to see as the leader of the world’s largest and most influential monetary policy maker). The dollar rocketed higher. Stocks rose on an initial dovish read of the FOMC statement but soon sagged as Chairman Powell turned his attention to the “transitory” factors dragging on inflation. One couldn’t help but hear his commentary as a bit on the sanguine side as he reaffirmed his goal to “sustain the recovery.” Unfortunately for Jay, he is back on our radar as a tail risk to the very thing he seeks to preserve. One question: At what point does something “transitory” become “persistent?”

Market Outlook: Bullish USD, Neutral Duration, Neutral Equities