Morning Report: The paradox of the Millennials

Vital Statistics:

	Last	Change	Percent
S&P Futures	2100.9	18.0	0.86%
Eurostoxx Index	3670.3	51.0	1.41%
Oil (WTI)	46.44	0.7	1.53%
LIBOR	0.304	-0.005	-1.59%
US Dollar Index (DXY)	97.81	-0.124	-0.13%
10 Year Govt Bond Yield	2.23%	0.01%
Current Coupon Ginnie Mae TBA	104	-0.5
Current Coupon Fannie Mae TBA	103.5	-0.5
BankRate 30 Year Fixed Rate Mortgage	3.88

Stocks are higher this morning as overseas markets rallied overnight. Bonds and MBS are down small.

Stocks got a boost when the ADP  Employment  Number came in weaker than expected. The ADP Employment number is often a decent forecast for the big payroll number on Friday. According to ADP, (the big payroll processing firm) the economy added 185k jobs last month, which was lower than the 215k forecast.  We  might be entering a "bad news is good news" cycle where weak economic news is considered bullish because it keeps the Fed on hold. 

FRB Atlanta President Dennis Lockhart said yesterday the economic data would have to deteriorate a lot to get him not to vote for a Sep hike. Lockhart's voice is important because he is considered more of a centrist. 

Mortgage Applications rose  4.7% last week, according to the MBA. Purchases rose 3.3% while refis rose 5.9%. 

Interesting take on the Millennial generation and the paradox of the labor market. How come, this far into the recovery, are Millennials still living at home with their parents? How is this possible with an unemployment rate of 5.3%? Historically, a 5.3% unemployment rate was associated with booming economies. This speaks to the disconnect between the data and what people actually perceive (and why, despite the data, people think we are still in a recession). According to the data, the labor market is strong, and those that put a lot of stock in that data believe that wage inflation is right around the corner, and therefore the Fed should start hiking rates. On the other hand, some point to the situation with the Millennial generation and say the data is, if not misleading, just not capturing the whole picture. They believe the underemployment rate (which is around 10.5% and represents people who have part-time jobs and want full-time jobs) is a better representation.

I would add, the quality off the full-time job matters. If a recent grad is working as a barista full time, they count as employed according to the Bureau of Labor Statistics. However, that grad should be working at an entry-level white collar job, which pays more than Starbucks. They aren't and that is why they are still living at home. 

Just for fun, I subtracted the unemployment rate from the underemployment rate to get a different picture on the economy. We are still at near recessionary levels, at least compared to past recoveries. Note the data only goes back to 1994. Still, an interesting chart:

IMO, that tells a different story. We are still at levels associated with the 91-92 recession, where recent grads were working in retail and unable to get jobs, This job market seems similar. It also speaks to the just-in-time labor management style companies use nowadays. Where does this leave the Fed? Well, the last time the spread was this high, the Fed waited another two years to start hiking rates.