After what seemed like an extremely weak nonfarm payroll report, Treasuries initially rallied, sending the 10-year Treasury yield briefly below 2.3%. The treasury is yielding above that now, which, given the report and military action in in Syria, might be a sign that yields have bottomed for now.
While the "Establishment" part of the report was bad -- only 60,000 net jobs once you account for revisions -- the "Household" part of the report offers some hope. There were 326,000 fewer unemployed people last month. We have also seen some year-on-year progress in people forced to work part-time when they would rather work full-time, and those who have become discouraged at job prospects.
In fact, the broader measure of "underemployment," also known as "U-6" by economists, has broken below 9% since 2017. Many at the Fed watch this number as closely as the more widely publicized unemployment rate (which dropped to 4.5%) because it does capture structural problems in the labor market better. That this very important piece of data improved so much should not be ignored.
There are some other questions around this report, since it does seem to deviate from other employment data:
- Did ADP overstate small and mid-size company hiring? Or is the Establishment survey understating that hiring?
- Was it the weather? There are some possible weather related issues.
In any case, the headline number of 98,000 jobs might overstate the weakness.
Treasuries seem to be fading the initial move -- partly because of that, and partly, I suspect, as so many short positions have been now stopped out, that at 2.3%, near the bottom end of the trading range, the market has gotten sucked into being long Treasuries again. I think that paves the way for treasury yields to move higher.