US macro/jobs and wages


Friday’s NFP (non farm payrolls) was a solid upside surprise, ~272K jobs created in the month, well ahead of consensus (closer to ~160K), with solid MoM wage (average hourly earnings) gains, running at 0.4%, which is around 4.8% annualised.

Bonds didn’t like it, with yields jumping some 10-12bps higher (stronger growth, tighter labour markets being more like “no landing” than “soft landing”) as rate cuts were priced out at the margin.

The strength was at odds with what JOLTS told us last week (8.05m jobs open, down from 8.3) and at odds with some of the survey data (PMIs, ISMs, the Kansas City labour survey) which were all quite weak.

So, once again, survey data not mapping well to hard data. Continuing claims and initial jobless claims continue to suggest the labour market is, if not tight, then, at the least, certainly not weak.

Perhaps two minor points of weakness, one, the unemployment rate in aggregate moved up to 4% (rounded, it was slightly less at 2dp) and the African American unemployment rate moved up to 6.1%, so pockets of the market showing movement after strong gains. Also, the household survey (which, as the name suggests, asks households about employment, as opposed to the establishment survey, which asks the employers) was negative, in stark contrast to the NFP gains.

So, equity markets traded well enough given that strong employment usually correlates well to strong nominal consumption (people spend out of income which they get from being employed) which drives nominal GDP which drives corporate profits, and intermediate duration bonds were hurt by the repricing of growth and inflation expectations.


In conclusion, difficult to map outcomes, sticking not too far from ones’ SAA continues to seem wise, which means staying diversified. Last month, May, stronger risky assets were enough to keep DAA funds ticking along ahead of strategic return objectives, so far, June seems set to do the same, even as yields back up a touch.

Perhaps a last point, on those yields, they do seem stuck below the high 4’s, basically a wall of money seems to get long duration, at that point. So with any luck, that’s the limit, and the downside (in the sense of lower, not in the sense of worse outcomes) is 150bps lower, with goldiliocks, and lower still with any recession scares.

Nominal GDP has been a very broad general valuation measure for the 10yr yield (being the return to saving / the change in the growth rate consumption, which when scaled by patience is how households make (are making?) the transition between the now and the future, with the trade off being the interest rate), and you can see from the graph below that NGDP often sits ahead of the 10yr yield, with a spread, and that spread currently is quite low.

If NGDP stabalises at 5%, a brisk growth rate of 2.5% real and 2.5% price, that would be consistent with a 10yr rate a bit below 4%.

Now, that is the most simplified model of the 10yr that one could care to ever table, but, it’s sorta kinda worked for 60 years. So, it’s worth keeping in mind.

The map

Rounding off on the “difficult to map” observation about macro data and what kind of environment we are in, accelerating, decelerating, overheating, cooling, and so on, the below graph from Spectra markets was interesting.

He frames it via Gas and Brakes, as the analogy, alongside the specific data point he’s looking at for confirmation. In all cases there’s a solid counterpoint to be made, and hence sort of collapses into a “metaphorical shrug” about what to do.

For us, as usual, that in turn comes back to “not to far from ones’ SAA weight”. Things seems to be in an equilibrium, at least for right now, and whilst it might be easy to push us out from that equilibrium, we want the DAA weights to be more pronounced when there is a clear dislocation; as of right now, there isn’t one.

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