This morning’s centerpiece was the nonfarm payrolls number coming in at 260 versus a median forecast of 200k. Additionally, the previous month was revised up to 315k from 263k. Internal components were mixed with some bond-friendly argument to be made from 3.7% unemployment and a 0.1% drop in the participation rate (effectively a 0.2% increase in unemployment over last month’s 3.5%). Despite the counterpoint, the NFP headline clearly argues against a change in the Fed’s rate hike outlook. Nonetheless, bonds are holding in slightly positive territory after an initial sell-off.
In fact, Fed Funds Futures suggest that traders breathed a sigh of relief despite a few moments spent trading the hotter NFP headline.
If forced to assign meaning to this development, we’d think of it like this: NFP’s importance today pales in comparison to next week’s CPI data. The only meaningful result would have been a substantial undershoot of expectations. Anything else is a status quo. The modest recovery could be as simple as the implied 0.2% uptick in the unemployment rate (0.1% actual + 0.1% via labor force participation rate) providing an outside chance at an early hint of labor market softening. Other 3-month annualized measures also suggest softening, but it would be a surprise if they didn’t considering this data is still normalizing after being much stronger than historically normal.