ADP jobs data supports weakening outlook on employment

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Published Date 12/6/2023

Prior to 8:15 am ET this morning the 10-yield hit 4.21% +3 bps, at 8:15 am when ADP released its private jobs the 10 year yield dipped back to 4.17% unchanged. ADP reported private jobs in November at +102K with forecasts at 128K, October jobs were revised from 113K to 106K. The data doesn’t include government jobs, when BLS releases the official data on Friday the present estimate is an increase of 190K. The labor market is slowing, we saw it yesterday with the JOLTS job openings that declined to levels not seen in 28 months at 8.733 million against estimates at 9.4 million. The labor market still at 3.9% which is still low comparatively. The JOLTS and now ADP add to the conviction employers have backed off the strong hirings.

Q3 revised productivity and unit labor costs add more to the thought that strong productivity is leading unit labor costs lower, at -1.2% revised from -0.8% when the preliminary data was reported a month ago. Over the past year unit-labor costs have risen 1.5%, down from a 3.5% rate in the second quarter. The increase in productivity is good, higher productivity forces unit labor costs lower, that helps the inflation outlook. Meanwhile Federal Reserve officials have said it is too soon to know for sure whether this recent uptrend in productivity is sustainable.

According to how markets are trading the idea of rate cuts is gaining momentum. Traders in Europe now thinking the ECB may lower rates the market is pricing in six quarter point cuts in 2024; Deutsche Bank helped stoke the dovish sentiment by revising its outlook to also forecast 150 basis points of cuts; “Given the latest inflation data and the tone of official commentary, we fear we were too timid,”… “The risk is now earlier and larger cuts, and an ECB more capable of decoupling from the Fed.” Pricing in rate cuts is a daily game, swinging in big moves based on incoming data, not just in Europe but here in the US also. ECB will meet next week. Although there won’t be any cuts; just like the fed expect Christine Lagarde to temper excessive near-term sentiment. Recently though markets have increasingly ignored what the Fed and ECB try to control. The FOMC meets again on December 12th and 13th.

MBA said weekly mortgage applications increased 2.8%, purchases were down 0.3% but re-finances increased 13.9%.

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At 9:30 am the DJIA opened +95. NASDAQ +97, S&P +21. 10 year at 9:30 am 4.15% -2 bps. FNMA 6.5 30 year coupon at 9:30 am +4 bps from yesterday’s close and -7 bps from 9:30 am yesterday.

The decline in ADP jobs and yesterday’s JOLTS job openings confirm employment is slowing. Good news for Mr. Powell and bolsters the increasing view the fed will be cutting rates next year. Since the end of October the 10 year note has fallen 86 bps. Redfin commenting that “2024 will be neither a buyers’ nor a sellers’ market, but we think that the market will be tilting in favor of buyers with lower rates, lower prices, and more inventory as sellers get tired of waiting for rates to drop.”

Treasury rates continue to edge lower, but we are not seeing that in MBSs over the last few sessions. Our technical view remains positive though.

Source: TBWS

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