Rates rose after this morning’s BLS report showed the economy added 243k non-farm payrolls in January, the most since April 2011 and beating expectations of 135-145k.

December was revised from 200k to 203k new jobs created and November was revised from 100k to 157k.

This figure doesn’t count actual people, it counts how many companies opened or closed, then uses that data to estimate the number of jobs gained or lost.

Unemployment dropped to 8.3% from 8.5% according to a different part of the jobs report called the ‘Household Survey’ which counts people. This is the lowest since February 2009.

Rates rise when mortgage bonds (MBS) sell, and today’s selling trend breaks a two month-theme. Up to today, MBS initially sell on better U.S. economic news like this, then recover. But we’re not recovering this morning since jobs were a definitive upside surprise.

The 3.5% Fannie Mae coupon—a key benchmark lenders use to price consumer rates—has been down as much as 52 basis points which translates into rates .125% to .25% higher if the selloff holds. But impending Eurozone trouble continue to temper selloffs to keep rates from spiking: 30yr fixed single family home loans to $417k look like they’ll still end the week below 4%.

More in WeeklyBasis recap/outlook tomorrow, and here’s a deeper dive on today’s numbers.
___
Source:
BLS January Jobs Report

- Headline Nonfarm jobs was +243,000. Consensus was 135,000
- Unemployment Rate was 8.3% down from 8.5% in December 2011
- Average hourly wage $23.29 up from $23.24 in December 2011
- Average work week was 33.4 hours down from 33.7 in December 2011
- Private jobs were +257,000. Government jobs were -14,000

Reading beneath the surface:

-Good producing jobs were +81,000.

-The size of the civilian labor force rose from 153,887,000 to 154,395,000.

-The labor participation rate (percent of adult non-institutionalized population who are part of the labor force) fell to 63.7%. It was 64.2% a year ago.

This is the part I find interesting: according to the 4 week moving average of Initial Jobless Claims 1,511,000 people lost their jobs in the last 4 weeks. That normalizes to 1,637,000 lost jobs in a month (there are about 13 four-week periods in a 12 month year.) This is up from the previous month’s 1,617,000 lost jobs/month.

The question is this: if 1,637,000 people lost their jobs last month and we gained 243,000 jobs, how did that happen?

The answers are in the Household Survey segment of the jobs report.

In January 2012 BLS measured 4 sets of people entering or leaving the jobs market:

- Job losers and persons who completed temporary jobs was 7,321,000 down 281,000 from December’s Job Leavers and down 1,141,000 from January 2011.

-Job leavers was 939,000. This includes anyone who retired or voluntarialy left working. This was down 23,000 from previous month and up 25,000 from January 2011.

-Reentrants was 3,325,000. Reentrants are people who were looking for a job a found one. This was -74,000 from previous month and -26,000 from January 2011.

-New entrants were 1,337,000. These are unemployed persons who never worked before and who are entering the labor force for the first time. This was +61,000 from previous month and +84,000 from January 2011.

In summary: few people lost their jobs, fewer people left their jobs, more unemployed people got jobs, and more people entered the labor force for the first time.

The largest factor was that fewer people lost their jobs. The number of job losers each month is about 30 times the change in jobs. It may be the case that fewer temps were laid off. That would explain why initial jobless claims were up and job losers was down.

Fewer temps being laid off is an early sign of recovery in the jobs market. One concern is that inventory buildup continues to outpace consumer spending and unless consumer spending picks up, some of the gains seen here will be given back.

If you look at the most recent U.S. jobs and manufacturing data summarized below as well as better retail earnings this morning (WSJ, IBD), it’s a picture of modest improvement. Normally this would mean higher rates as investors shift out of safe bets into riskier assets. But the overhang of the Eurozone debt crisis proves to be too much.

It doesn’t help that Bernanke implied the U.S. could be Greece in his testimony this morning. Read the link for why it’s really not, but that doesn’t matter on short-term sentiment. The bond rally continues on this, and of course the week’s hot Eurozone topic: Greece, which is still trying to get private investors to agree on a debt deal.

The deal calls for Greek bond investors to exchange outstanding bonds for new ones with coupons as low as 3.6-3.75%, and take losses of about 70% in the process. If most private investors don’t agree, it could trigger credit default swaps (CDS) on these securities, leading a European bank liquidity issue, which is really a global issue.

That plus the fact that the deal may not save Greece is why investors are seeking refuge in MBS and Treasuries (which are yielding 1.84 right now, also staggeringly low).

And now for the stat/chart rundown…

Jobless Claims
-367,000 for week ended January 28, seasonally adjusted
-Down 12,000 from previous week’s revised 379,000 (was 377k)
-4-week moving average was 375,750, down 2,000
-The 4-week average translates into 1,637,000 Jobless Claims/month
-While this week’s data is modestly better, this is not an indication of a healthy jobs market. It is healthier that it was but still not well. Tomorrow’s BLS Employment Situation Report will give another look.

Challenger Job-Cut Report
-Announced layoffs for January were 53,486 up from previous month’s 41,785

ISM Manufacturing Index (January 2012)
-ISM Manufacturing Index 54.1. Previous was 53.9.
-50 is dividing line between expansion and contraction
-This is the 30th straight month of (albeit modest) expansion
-The data are consistent. The wholesale part of the economy seems unaware that consumer spending had flattened. Either Consumer Spending will increase or manufacturing will decrease. The last GDP report showed significant growth in inventories.

The point is that this is perilous for 1Q2012 GDP. If Consumer Spending is flat and Government Spending is down and the Investment part of GDPis down because inventories are too large then GDP will be flat or even negative.

Here’s a summary of all ISM Manufacturing trends:

Worker Productivity and Costs (4thQ2011)
-Nonfarm productivity – Quarter/Quarter change +0.7%
-Unit labor costs – Quarter/Quarter change (seasonally adjusted, annualized) – +1.2%
-Productivity growth slowed (it was +2.3% in the previous Q/Q comparison) while compensation rose 1.9% after falling 0.3% in 3rdQ2011.

ADP January 2010 Jobs Report
-ADP showed +170,000 new private jobs
-Previous was +325,000, Consensus was +172,000
-These are private sector jobs only: +170,000 private jobs is not an indication of economic growth and just barely keeps pace with population growth.

Mortgage Applications Week Ended January 27
-Purchase Index, Week/Week -1.7%
-Refinance Index, Week/Week -3.6%
-Composite Index, Week/Week -2.9%

- Purchase Index, 4-week Moving Average +4.11%
- Refinance Index, 4-week Moving Average +4.22%
- Composite Index, 4-week Moving Average -2.9%

-Full mortgage app report.

Construction Spending (December 2011)
-Construction Spending, Month/Month +1.5%
-Construction Spending, Year/Year +4.3%
-New single-family construction was 1.5%

by Julian Hebron & Dick Lepre

New Home Sales (December 2011)
-New Home Sales for December were 307,000 (seasonally adjusted, annualized)
-Previous was 315,000. Consensus was 320,000
-Down 2.2% since November, Down 7.3% since December 2010
-Average sale price $266,000
-Estimated 302,000 new homes were sold in 2011, down 6.2% below the 2010 figure of 323,000
-Full report
-No surprise here – this is still weak.

Leading Economic Indicators
-Leading Indicators, Month/Month change +0.4%.

Forget the data here. What is notable is that money supply has been removed from LEI. This goes hand-in-hand with yesterday’s FOMC announcement that short-term rates would stay where they are for at least 2 more years. This is an admission that monetary policy has been ineffective as a stimulation force on the economy. That is, to me, an astonishing admission.

Durable Goods Orders (December 2011)
-New Orders, Month/Month 3.0%
-Ex-transportation, Month/Month +2.1%
-This is indicative of continued growth in manufacturing.

Chicago Fed Index of National Activity
-Index level was +0.17 for December

Kansas City Fed Regional Manufacturing Index
-Level was +7 for December

GDP
I want to correct what I wrote yesterday about the forecast for GDP. The Consumer Metrics index spiked in June-July. Since this seems to lead GDP by three month this indicates a fairly strong (3.5% or more) increase in 4Q2011 GDP. The subsequent slide down in the Consumer Metrics Index indicates a weak 1Q2012.

Jobless Claims
-352,000 for week ended January 14, seasonally adjusted
-Down 50,000 from previous week’s 402,000 (was 399k)
-4-week moving average was 379,000, down 3,500
-Biggest weekly drop since September 24, 2005
-Lowest jobless claims since April 2008
-But job market still not adding jobs fast enough
-More analysis/charts from Bespoke

Housing Starts & Building Permits (December 2011)

Housing Starts (December)
-Housing Starts 657k seasonally adjusted, annualized. Below previous (685k) & consensus (678k)
-Construction (measured by Starts) down 4.1% in December
-Single family starts up from 450k to 470k, highest since April 2010 when homebuyer tax credit boosted production
-Multifamily home constructions down from 13% from 215k (Nov) to 187k (Dec)
-Single family starts ended 2011 at 428,600, worst year on record.

Building Permits (November)
-Building Permits 679,000, seasonally adjusted, annualized
-Permits are a measure of future construction
-Up 0.1% from November
-Flat month

There should be 1,500,000 annual Housing Starts to keep pace with population growth and scrappage. Relaxed mortgage underwriting led to increased supply and the recession has created more supply (foreclosures) and lower demand leading to still decreasing home prices. The housing market is not going to return to normal until the foreclosure inventory is cleared and values stop falling.

-Starts/permits releases: Commerce Dept | NAHB
-Table and chart below. Click images for more.

CPI: Consumer Inflation (December 2011)
-CPI, Month/Month unchanged from previous month
-CPI, Year/Year change +3.0%
-CPI core (less food & energy) Month/Month change, +0.1%. Previous +0.2%. Consensus +0.1%.
-CPI core (less food & energy) Year/Year change, +2.2%
-Consumer inflation is flat, and not a threat near-term

Philadelphia Fed Manufacturing (January 2012)
-Index of manufacturing activity in Philly region rose to 7.3 for January
-Region is: Eastern Pennsylvania, Southern New Jersey, Deleware
-This is down from a from a revised 6.8 in December (was 10.3)
-Zero is the dividing line between expansion and contraction
-Fourth straight monthly gain even with revision down for December
-Full report

by Dick Lepre & Julian Hebron

-Up 24,000 from previous week’s revised 375,000 (was 381k)

-4-week moving average was 381,750, up 7,750

-Initial claims now at highest level since end of November on a seasonally adjusted basis, but still under 400k, a key threshold.

-There were a lot of post-Christmas layoffs presumably from employers such as UPS but this data is seasonally adjusted.

-The Bespoke chart below shows claims on a non-seasonally adjusted basis, and they report that “Even after this week’s reportedly big jump, for the first week of January (red dots), initial claims have not been this low since January 2008.”

-The reality is that the jobs market is still weak despite a decent run for claims before this week.

Retail Sales (December 2011)
-Retail Sales, Month/Month 0.1%

-Retail Sales less autos, Month/Month -0.2%

-Less Autos & Gas, Month/Month 0.0%

-Retail sales were up 7.7% in 2011 vs. 2010

-Full report from Commerce Dept.

Business Inventories (November 2011)
-Inventories, Month/Month +0.3%.
-This is more or less in line with consumer demand.

Outlook
This new year is starting poorly. Recent fundamentals are pointing to reduced GDP growth. We have not yet recovered from the mortgage mess induced recession and now the EU is about to start a lengthy period of recession or flat growth. Japan is going nowhere and China will lower GDP growth. Our national fiscal policy is unsustainable. What we have is a formula for lengthy, worldwide recession.

If this is in fact the outcome, the upside is sustained low rates for consumers who qualify for credit.

by Dick Lepre & Julian Hebron

Rates rise when mortgage bonds (MBS) sell, and today’s trend continues a two month-theme: Mortgages sell right after better economic releases and EU aid news, then recover. The 3.5% Fannie Mae coupon—a key benchmark lenders use to price consumer rates—was down 30 basis points in early trading and is now up 23 basis points. Impending EU trouble (and MBS-focused QE3 rumors) have tempered—and reversed—selloffs to keep rates from spiking from current record-low levels.

More in WeeklyBasis recap/outlook tomorrow, and here’s a deeper dive on today’s numbers.

Reading beneath the surface:

-Good producing jobs were +48,000. The largest gain in a while.

-The size of the civilian labor force fell from 153,937,000 to 153,887,000.

-The labor participation rate (percent of adult non-institutionalized population who are part of the labor force) stayed at 64.0%. It was 64.3% a year ago.

This is the part I find interesting: according to the 4 week moving average of Initial Jobless Claims 1,493,000 people lost their jobs in the last 4 weeks. That normalizes to 1,617,000 lost jobs in a month (there are about 13 4 week periods in a 12 month year.)

The question is this: if 1,617,000 people lost their jobs last month and we gained 200,000 jobs, how did that happen? The answers are in the Household Survey.

In December 2011 BLS measured 4 sets of people entering or leaving the jobs market:

- Job losers and persons who completed temporary jobs was 7,602,000 (up 3,000) from previous month and down 1,275,000 from December 2010.

-Job leavers was 953,000. This includes anyone who retired or voluntarialy left working. This was -52,000 from previous month and +33,000 from December 2010.

-Reentrants was 3,399,000. Reentrants are people who were looking for a job a found one. This was +44,000 from previous month and -7,000 from December 2010.

-New entrants were 1,280,000. Unemployed persons who never worked before and who are entering the labor force for the first time. This was +4,00 from previous month and -26,000 from December 2010.

What does all of this mean? It means that the economic and social factors associated with the jobs market are vastly more complex than just the 2 pieces of data: change in jobs and unemployment rate. There are demographic factors (people retiring and young people entering the jobs market) which are as significant as the changes in the set of people continually part of the labor force.

Analysis of the monthly report is but another example of the unwillingness of the media to try to understand and explain a complex topic. The average newspaper has 10 times more analysis of a football game than it does of the jobs market.

The main market moving event of the week is tomorrow’s BLS jobs report. More below.

ADP Jobs Report
-ADP private Jobs for December +325,000

-Well above consensus (178,000) and previous (204,000)

-While ADP and BLS sometimes seem loosely correlated this is an indication and tomorrow’s BLS non-farm jobs will be strong

Challenger Job-Cut Report
-Announced Layoffs for December 41,875

-Previous was 42,474

-Except for a spike in September this number has been rather flat for about two years.

Initial Jobless Claims
-372,000 for week ended December 31

-Down 15,000 from previous week’s revised 387,000 (was 381k)

-4-week moving average was 373,250, down 3,250

-Weekly resumes down trend after rising week of 12/24 (the only rise in last 5 weeks)

-Below 400k signals improving jobs picture

-Average claims since 2000 are 390k, so 1-week and 4-week numbers are better than long-term trend.

The jobs market is a more complex thing than simple totals reveal. From month-to-month most people have the same job they had the month before but some workers die, some retire, some get laid off and some get rehired. In addition the market ideally should absorb young people who are seeking to enter the jobs market.

If people defer retirement because they do not have enough savings then total jobs may be higher than otherwise and while that is good because they are still earning and spending, this could be contributing to fewer people at the other end of the age spectrum getting hired. That $7 trillion in lost value in household wealth which yesterday’s Federal Reserve report mentioned may have shifted the demographics of the jobs market.

ISM Non-manufacturing Sector
-This is a survey index of services sectors

-Index value for December was 52.6. Previous was 52.0. Consensus was 53.4.

-50 is dividing line between expansion and contraction

-This shows modest growth.

Construction Spending (November 2011)
-Construction Spending, Month/Month +1.2%
- Construction Spending, Year/Year +0.5%
-Commerce Dept full report
-Gains modestly good news because they are gains from very low levels of spending
-Graph below tells sad story of what has happened to construction spending post-bubble

Jobs Report Preview
This Friday has the BLS Employment Situation Report. Consensus is about +150,000. This is a report which I don’t believe is being analyzed fully. The size of the labor force may be buoyed by the fact that more people are delaying retirement. These might be people who 5 years ago intended to retire by selling their home and living on the equity. With that equity having vanished that plan may not work and some folks delay retirement. On the other hand some people may be retiring because they lost their jobs and now live on social security. I am not reporting fundamentals here but merely talking about them. We think of the labor force as a set of people who gain and lose jobs but the situation is more complex: some people die, some people retire, young people enter the labor force, some people in the labor force lose their job and some people in the labor force get new jobs.

Totalling the labor force each month and comparing it to the previous doesn’t tell the whole story.