4/29 - 5/3


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The Employment Cost Index is a quarterly report that measures the ​change in hourly labor costs for employers in the US. Today’s ​reading for Q1 showed costs rise from 0.9% to 1.2%, which was ​well above the 1% estimate. Wages remained the same, but ​benefits rose from 0.7% to 1.1% and accounted for all of the rise. ​Bonds sold off after this news.


Helping reduce some of the losses was a very weak Consumer ​Confidence report, which came in at 97, the lowest level since ​July 2022. The previous month was also revised lower from 104.7 ​to 103.1.

The main reason for the miss in confidence was the softer ​answers to the labor market questions. Those that said jobs were ​Plentiful fell by 1.5 points and those that said jobs are hard to ​get rose by 2.7 points, both the weakest readings since ​November. There was also a 2.6 point drop to those expecting ​more jobs in the next six months, which is the worst figure since ​October 2011…including Covid. Income expectations also fell by ​1.9 points. Bottom line – the survey data of consumers and ​businesses do not match up with what we are seeing in the ​labor market data points we get every month.


We reported yesterday that the Treasury needs to borrow $41B more than ​expected over the next quarter, and we will find out what maturity those ​Treasuries will be tomorrow morning. The more concentration on the ​lower end the better for Mortgage rates – Yellen will likely try to keep ​most on the low end because she doesn’t want long term rates to rise ​and it’s also expected that rates are going to eventually fall, so why lock ​in higher rates for a long period of them when you can use shorter term ​debt today and exchange it for lower rates in the future.

Back to why the Treasury needs to borrow $41B more than expected – ​The reason is lower tax receipts…but why would we not be getting ​enough tax receipts if the unemployment rate is so low and the economy ​is so strong? It brings into question the accuracy of the unemployment ​rate at 3.8%.

Yesterday we reported that the Quarterly QCEW Data, which is from the ​Census and is what actually happened – Not using imputed data and ​looks at almost 12M entities instead of 700k in the BLS, tells a completely ​different story. While the most recent census data is for Q3, it’s showing ​192,000 job losses vs the BLS showing 521,000 job gains…something ​doesn’t add up there. It also makes you wonder if the unemployment rate ​is really much higher and if it were reported that way, what impact it ​would have on the Fed’s decisions.


The Apartment List National Rent Report for April ​showed that new rents rose 0.5%, and while it ​increased, it was a deceleration from March, which ​was at 0.6%. Normally during this time of year rental ​prices will accelerate till about May or June, then ​reverse lower. This is not a trend yet, but could point ​to lower rental figures ahead. Year over year, new ​rents are still down 0.8%.

Something that may keep rental increases lower is ​the higher national vacancy rate at 6.7%, which ​should continue to rise as all of the multifamily new ​construction comes to market.

We hope at some point the inflation reports we ​receive captures the lower rental costs.

Computer and graph


Home price gains continue – The Case Shiller Home Price ​Index, which is the “gold standard” for appreciation, showed ​that home prices rose 0.4% in February, following a 0.3% in ​January. Prices are now up 6.4% YoY, rising from 6% in the ​previous report. This was an extremely strong report, showing ​that buying a home still proves to be one of the best ​investments.


The FHFA (Federal Housing Finance Agency) released their House ​Price Index, which measures home price appreciation on single-​family homes with conforming loan amounts. Different than Case ​Shiller, it does not include cash buyers or jumbo loans. The FHFA ​reported that home prices rose 1.2% in February and are up a very ​strong 7% YoY, up from 6.4% in the previous report.



The April ADP Employment report showed that there were 192,000 ​jobs created during the month, which was stronger than estimates ​of 183,000. Additionally, March was revised higher from 184,000 to ​208,000.

Most of the hiring took place at businesses with 50 or employees, ​as small businesses only added 38,000 jobs. This is something to ​keep in mind for the BLS Jobs Report on Friday, as the BLS uses ​imputed data via their birth/death model for small businesses and ​it has been coming in much hotter than ADP’s actual small business ​data. This could be a negative, meaning we could see some ​stronger job growth in the BLS report.

The Goods sector added 47,000 jobs, led by Construction, which ​added 35,000. The Service sector added 145,000 jobs, led by ​leisure and hospitality, which added 56,000.

ADP also reported that annual pay for job stayers increased at 5%, ​which is down from 5.1% in the previous report. Job changers saw ​an average increase of 9.3%, which is down from 10.1% in the ​previous month, but this figure was as low as 7.6% in February.

The Atlanta Fed’s wage tracker fell from 4.9% to 4.7% in March, ​with job changers falling from 5.3% in February to 5.2% in March. ​You could argue this series is not as good as ADP because of the ​sampling size, but it’s almost half of the 10.1% reported in ADP ​during the same month – More conflicting data.

The March JOLTS data showed that job openings contracted – Job openings ​totaled 8.488M, down from 8.813M and well-off estimates of 8.7M. This is the ​lowest level of job openings since Feb 2021.

Leisure and hospitality only up 10,000, following a 20,000 increase in the ​previous report. This sector is cooling down in the way of job openings, but it’s ​yet to be seen in the job report data.

The Quit rate remained fell from 2.2% to 2.1%, which is the lowest level since ​2018 when removing Covid. This shows some weakness in the labor market, as ​a lower quit rate means less people feel confident about getting a new ​job/less poaching from other companies.


The ISM Manufacturing Index for April fell from 50.3 to 49.2. Looking at ​the components, Employment remained in contraction for the seventh ​month in a row, but prices paid increased from 55.8 to 60.9…the highest ​level since mid-2022.


The MBA released their Mortgage Application data for last week, ​showing that purchases decreased 1% last week. Purchases are ​now down 14% from this time last year. Interest rates rose from ​7.24% to 7.29%. Rates are about 0.8% higher than this time last ​year.


The Fed left rates unchanged in a range of 5.25% to 5.50%, as expected. They ​cited that the economy is increasing at a solid pace, inflation progress has ​stalled, and job growth remains strong with unemployment low. Powell ​reiterated that the Fed does not expect to cut until they are confident inflation ​is moving towards 2%.

There was a fear that the Fed’s next move would be a hike, but Powell went ​out of his way to shut that down and if we needed tighter conditions, they ​would just keep the Fed Funds Rate where it is. He was asked if inflation ​remained the same, but if the unemployment rate moved higher, would that be ​enough for them to cut. Powell responded by saying that a couple of tenths ​would not be enough, but a surprise would. We believe if it goes to 4.1% or ​above it could pressure them.

Surprise on the Balance Sheet which helped Bonds – Powell announced that ​the Fed would slow their balance sheet reduction…Instead of allowing up to ​$60T in Treasuries to runoff each month, they are now only going to allow ​$25B – this a bigger reduction than expected. That means anything falling off ​their balance sheet above that level, the Fed will be reinvesting in Treasuries. ​The Fed is going to continue to allow up to $35B in Mortgage-Backed ​Securities to fall off their balance sheet, but anything in excess, they will ​reinvest in Treasuries. We feel that this, in coordination with buying from the ​Treasury, will help to absorb some of the supply in the Bond market and can ​help rates to move lower.


Initial Jobless Claims, which measures individuals filing for unemployment ​benefits for the first time, remained unchanged at 208,000.

Continuing Claims, or those that continue to receive benefits after their initial ​claims, were also unchanged at 1.774M.

Today’s report continues to bring into question the validity of these numbers. ​How are the figures exactly the same as a week before in both initial and ​continuing claims, especially when considering the points we brought up ​previously from Jim Bianco:

The figure has been almost the same number for the last 11 weeks, taking out ​the holidays. The US is a $28 trillion economy, it has 160 million workers, Initial ​claims for unemployment insurance are state programs, with 50 state rules, ​hundreds of offices, and 50 websites to file. Weather, seasonality, holidays, ​and economic vibrations drive the number of people filing claims from week to ​week. Yet this measure is so stable that it does not vary by even 1,000 ​applications a week. Just the number of applications incorrectly filed out every ​week should cause it to vary more than this.


Productivity of workers has been strong the last few quarters, but fell to 0.3% ​in Q1. As a result of workers being less productive, unit labor costs rose from ​0% to 4.7%. These two metrics are usually on the opposite side of the seesaw. ​Because unit labor costs rose sharply, it could be inflationary. This caused the ​market to lose a little ground, but it hung in there after yesterday’s comments ​from the Fed.


The Bureau of Labor Statistics (BLS) reported that there were 175,000 jobs created in April, which was well below the ​243,000 expected. The previous two months were revised lower by 22,000, adding to the miss this morning.

The faulty Birth/Death model added 363,000 jobs to the headline figure – Imagine what the number would be without ​this…-188,000. This is where the BLS tries to figure out how many businesses came online vs offline and how many jobs that ​accounted for – But it really is getting small business data, which for comparison, ADP said there was only 38,000 in April.

The biggest contributor to job growth was Healthcare, which added 56,000 jobs, followed by Social Assistance, which ​added 31,000. Transportation and warehousing and Retail trade each added roughly 20,000 jobs each as well….and that’s ​pretty much where most of the gains came from.

Leisure and Hospitality only added 5,000 jobs, coinciding with the drop in new openings from the JOLTS report.

Average hourly earnings, which measures wage pressured inflation, rose 0.2%, which was below the 0.3% expected. Year ​over year, average hourly earnings fell from 4.1% to 3.9%, which was below the 4% expected.

Average weekly hours worked decreased from 34.4 to 34.3. Average weekly earnings fell 0.1%, with the YoY figure ​decreasing from 4.1% to 3.9% year over year.

Remember, there are two surveys within the Jobs report, the Business Survey and the Household Survey. The Business Survey ​is where the headline job creation number comes from the and the Household Survey is where the unemployment rate comes ​from.

The Household Survey has its own job creation component, and it showed only 25,000 job gains. The labor force increased ​by 87,000, and since there were fewer job gains than the increase in the labor force, the unemployment rate moved higher ​from 3.8% to 3.9%. This matches the unemployment rate we saw in February, which is the highest figure since January 2022.

If you look at the u-6, which is a broader measure of unemployment within the BLS report and does not remove people, the ​unemployment rate increased from 7.3% to 7.4%. This is the highest u-6 reading since November 2021.

Looking deeper at the 25,000 job creations in the household survey – There were 949,000 full time job gains, with 914,000 ​part time job losses. Additionally, multiple job holders fell by 93,000.