Morning Report: Jobs report misses, and rates fall

Vital Statistics:

	Last	Change
S&P Futures	2434.3	4.8
Eurostoxx Index	394.3	2.6
Oil (WTI)	47.4	-1.0
US dollar index	88.5
10 Year Govt Bond Yield	2.16%
Current Coupon Fannie Mae TBA	103.33
Current Coupon Ginnie Mae TBA	104.25
30 Year Fixed Rate Mortgage	3.94

Stocks are up this morning despite a miss on the jobs report. Bonds and MBS are up.

Jobs report data dump:

• Nonfarm payrolls up 138k
• Unemployment rate 4.3%
• Employment to population ratio 60%
• Labor force participation rate 62.7%
• Average hourly earnings up 2.5% YOY
• Average workweek 34.4 hours

The payroll number was a big miss from the 185k expectation, and differs wildly from the ADP payroll number yesterday of 253k. Yet another instance where the ADP number and the official BLS number aren't even close to each other. Yes, the ADP number is meant to track the final revised BLS number, so it is possible that the BLS payroll number gets revised upward in the next two months. The labor force participation rate fell to 62.7% from 62.9% which was a disappointment as well. The unemployment rate fell to 4.3%, which is a 16 year low. The labor force shrunk by 430k people, while the number of people employed fell by 233k. The overall population increased by 180k. The two numbers the Fed pays the most attention to (employment / population ratio and hourly earnings) are certainly not pointing to any sort of inflation acceleration. 

Despite the payroll number, the Fed Funds futures increased their probability of a June hike to 93%. The 10 year continues to rally, and we are at the lowest yields since early November. The Trump reflation trade continues to deflate, at least as far as bonds are concerned. 

Construction spending continued its zigzag pattern, falling 1.4% MOM but increasing 6.7% YOY. Residential construction fell on a MOM basis but is up 16% YOY. Public residential construction fell. 

The ISM Manufacturing Index ticked up last month, led by increases in new orders, production, and employment. The prices index fell by a lot, however which again shows the lack of inflationary pressures in the supply chain. The current levels so far in the PMI index correlates with a historical GDP growth rate of around 4%. While manufacturing isn't the driver of the economy it used to be, it still matters. 

Announced job cuts at Ford pushed up the Challenger job cuts number, but otherwise job cuts are largely small. 

Donald Trump announced he will pull the US out of the Paris Accord yesterday. This will take years, so in the meantime expect no effects on oil prices or the economy. 

Investment bank Moelis, along with Blackstone and Paulson fund management have reportedly put out a detailed blueprint to bring the GSEs out from under government control. Treasury Secretary Mnuchin as well as the MBA are cool to the idea, because existing stockholders will benefit, when in reality they would have been wiped out back when the GSEs went under conservatorship. 

Home sizes are shrinking for the first time since 2009. This is mainly due to a change in the hombuilder mix. Post-crisis, the only segment of the homebuilding market that was working was the luxury end. Now, starter homes are becoming the focus, which is dragging average sizes lower. Home sizes are still larger than the bubble peaks were. 

Small business lending fell in April.