Morning Report - Deluge of data

Vital Statistics:

	Last	Change	Percent
S&P Futures	1922.3	-2.5	-0.13%
Eurostoxx Index	3090.5	-25.1	-0.80%
Oil (WTI)	97.71	-0.5	-0.47%
LIBOR	0.24	0.003	1.05%
US Dollar Index (DXY)	81.51	0.053	0.07%
10 Year Govt Bond Yield	2.54%	-0.02%
Current Coupon Ginnie Mae TBA	106	0.1
Current Coupon Fannie Mae TBA	105.3	0.2
BankRate 30 Year Fixed Rate Mortgage	4.2

Stocks are lower this morning after yesterday's bloodbath. Bonds and MBS are up.

The jobs report came in weaker than expected. Payrolls increased by 209,000, and the two-month payroll revision was +15,000. The unemployment rate ticked up to 6.2% and the labor force participation rate rose to 62.9% from 62.8%. However hourly earnings were flat and average weekly hours were flat as well. The lack of wage pressure cheered the bond market, which is clawing back yesterday's losses. FWIW, the employment cost index showed a .8% increase in wages yesterday (benefits are calculated separately), so the lack of wage growth as reported by BLS is surprising. 

By the way, for the bond market to start worrying about wage inflation, you will need to see increases in average wages of about 4%, not the 2% inflation target. Why? Productivitiy, which is running about 2% (notwithstanding the lousy print in Q1). Wage inflation that is offset by productivity increases is not inflationary. So, when you think about the US needing 4% wage growth just to get to the Fed's inflation target, you can see we have a long way to go.

Still, we aren't going to see a robust economy until the labor force participation rate gets back to normal levels. As you can see from the chart below, about half of the increase in the labor force participation rate that was attributable to women entering the workforce starting in the 1960s has been given back. That low number represents excess capacity that isn't being captured with the headline unemployment number. Which is why wage growth is so hard to come by (the other reason being technology). 

Personal Spending rose .4% in June, and Personal Income rose .4% as well. The core personal consumption expenditure index rose 1.5% year-over-year, still below the 2% target the Fed would like to see.

The ISM numbers came in stronger than expected, showing that manufacturing continues to do well, A 57.1 number would correspond to GDP growth of 4.6%. Of course manufacturing doesn't dominate the economy (and employ people) like it used to, but it is still a good, strong number. 

Finally, construction spending slipped 1.8% in June after increasing an upwardly-revised .8% in May. Resi construction fell .2% month-over-month but is up 7.1% year-over-year.