By David Shirmeyer, CEO at Sigma Research
The Dec employment report made 2014 the best employment year since 1999. The unemployment rate declined to 5.6% from 5.8% in Nov on forecasts of 5.7%. Non-farm jobs were generally expected up 245K, as reported up 252K, Nov non-farms revised frm +321K to 353K and Oct revised upward by 20K. Private jobs were thought to be up 238K, as reported240K.
Average hourly earnings for all employees dropped by 0.2%, the biggest since comparable records began in 2006, to $24.57 from the prior month. Earnings rose 0.2% in November. They increased 1.7% over the 12 months ended in December, the smallest gain since October 2012.
Wage gains have been lagging behind the pace of employment growth with the majority of jobs at the low end of the pay scale. Monthly job increases averaged 289,000 per month in the final three months of the year, compared with 246,000 per month for all of 2014 and 194,000 for 2013. Altogether, employers added 2.95 million jobs in 2014, the biggest calendar-year increase since the figure topped 3 million in 1999. Of course, the U.S. population has grown significantly in that time, to more than 318 million in 2014 from 279 million in 1999, when the unemployment rate ended the year at 4.0%.
The headlines were very strong but the details not as much. The labor participation rate at 62.7% continues to very high as many simply just not looking anymore; at 5.6% unemployment also suggests people are dropping out. Average hourly earnings fell 0.2%, no wage increases; yr/yr wages up just 1.7% barely above the 1.3% inflation rate.
The U-6 data at 11.2%; under-employed and part timers looking for full time jobs. The drop in average hourly earnings continues to keep the normal people in the economy keeping spending frm increasing. The take away from the data this morning; the Fed has time before increasing rates, whether the Fed sees it that way is uncertain. A number of regional Fed presidents still are not on board an increase in rates. Officials have suggested that they may begin to raise rates this year, though minutes of December’s meeting also signaled concern about weak growth overseas.
The other story this morning; more terrorist attacks in France. Two additional hostage situations presently happening with more deaths after the attack two days ago at a French magazine office. French police faced off with gunmen on two fronts this morning, as the suspects behind the attack on French magazine Charlie Hebdo holed up with a hostage in a printing facility north of Paris and prosecutors said another gunman took captives in a kosher grocery store. The events may be off-setting the stronger employment data this morning.
The stock market opened at 9:30 with the DJIA -16, NASDAQ +5 and S&P unch. The 10 at 9:30 2.01% -1 bp; 30 yr MBS price unchanged from yesterday and +3 bp frm 9:30 yesterday.
US financial markets haven’t reacted to the strong headlines on the employment data. Investors and traders more concerned now that wages are declining even with job growth. Continued volatility this morning, by 10:00 the stock indexes were weakening from the 9:30 open. The 10 yr sitting quietly so far. Technical indicators still bullish for the 10 and MBSs, the 10 has its first support at 2.10% (now 2.01%).
START BY FLOATING THIS MORNING.
PRICES @ 10:20 AM
10 yr note: +5/32 (15 bp) 2.00% -1 bp
5 yr note: +7/32 (22 bp) 1.45% -4 bp
2 Yr note: +2/32 (6 bp) 0.57% -4 bp
30 yr bond: -2/32 (6 bp) 2.60% unch
Libor Rates: 1 mo 0.166%; 3 mo 0.252%; 6 mo 0.361%; 1 yr 0.627%
30 yr FNMA 3.5 Jan: @9:30 104.86 unch (+3 bp frm 9:30 yesterday)
15 yr FNMA 3.0 Jan: @9:30 104.59 +22 bp (+33 bp frm 9:30 yesterday)
30 yr GNMA 3.5 Jan: @9:30 105.34 +14 bp (+26 bp frm 9:30 yesterday)
Dollar/Yen: 118.92 -0.74 yen
Dollar/Euro: $1.1801 +$0.0008
Gold: $1213.50 +$5.00
Crude Oil: $48.52 -$0.27
DJIA: 17,828.98 -78.89
NASDAQ: 4723.84 -12.35
S&P 500: 2053.76 -8.38