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Unemployment Report: April 2, 2010

Posted by Larry Doyle on April 2, 2010 8:56 AM |

The widely anticipated April Unemployment Report covering the month of March was just released. Let’s dive right in and take a look at the numbers . . .

December: 10%
January: 10%
February: 10.1%
March: 9.7%
April Consensus Expectation: 9.7 %
– April Actual: 9.7%

>> LD’s comments: as expected. More people who had given up looking for work have now reentered the labor force. This trend will keep pressure on the rate. The U-6, that is the underemployment rate inched higher to 16.9% from last month’s 16.8%. What about the long term unemployed? 

Long term unemployed, that is those individuals out of work for more than 6 months, is at an all-time high of 6.5 million people. That figure is the strongest indication of the secular nature and structural changes ongoing within our economy.

II. NON-FARM PAYROLL (click here for definition of this term)
December: revised to a gain of 64k
January: revised to a loss of 150k, Jan and Dec revised with +35
February: loss of 20k, revised to a loss of 26k
March: loss of 36k
April Consensus Expectation: +200k
– April Actual: +162k with revisions to prior months adding 62k jobs.

>> LD’s comments: Close to consensus when we factor the revisions. The government added 48k jobs. Temporary workers added 40k jobs. The private sector added 123k jobs.

December: .1%
January: .2%
February: .2%
March: .1%
April Consensus Expectation: +.2 %
– April Actual: -.1%  !!!!!!!!

>>LD’s comments: Wages only grew 1.8% year over year. The decline this month is a real indication of disinflation if not outright deflationary pressure from this massively important economic variable. This number will not help consumer spending. Labor has no leverage whatsoever.

December: 33.2 hours
January: 33.2 hours
February: 33.3 hours under previous definition but 33.9 hours using a revised and more broadly defined measure.
March: 33.1 hours
– April Consensus Expectation: 33.9 hours
– April Actual: 34.0 hours.

>> LD’s comments: in line with expectations. Given the change in the definition of this component two months ago, the workweek continues to sit close to 35 year lows.

V. FURTHER COLOR: The patient that is our economy has “walking pneumonia.” There are a few signs of health but overall a continued drag. Recall that the economy needs to add 100k jobs per month just to keep even as that number of people enter the labor pool. The hourly workweek and wage figures are an indication of the continued slack in the economy.

The big challenge for the economy and markets will be how they adjust to the fact that Big Ben Bernanke no longer has his checkbook out buying U.S. Treasury debt and mortgage-backed securities via the quantitative easing program. We are too close to the 4% level on 10yr Treasury debt not to take a look at that next week. That move higher in rates will have the biggest impact on mortgage rates and housing.

The equity markets are closed today while bonds will only trade for a half day.



2yr Tsy: 1.07%, +1 basis point
10yr Tsy: 3.91%, +3 basis points
DJIA futures:  +14
S&P 500 futures : +1.3
U.S. Dollar Index: 81.01 +.23

Questions, comments, constructive criticisms always encouraged and appreciated.

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P.S. To those celebrating, I wish you a blessed Good Friday and a beautiful Easter!!

  • Mike


    How high can 10 year tsy’s get before the fed is pretty much forced to raise interest rates?

    • LD


      We are operating in uncharted waters. What may have been rules of thumb during past market cycles do not necessarily hold currently.

      The curve (the yield spread between 2yr and 10yr Treasury debt) is near all-time wides. (Currently that spread is near 290 basis points). It may very well be that the 10yr Treasury rate will actually decline as the Fed tightens (curve flattening).

      We need to look at the 2yr rate which is most closely linked with Fed policy. If the 2yr gets to 1.25% or more likely 1.5%, the market will be sending a strong signal to the Fed that it believes it should be tightening. The 2yr is currently 1.14%.

      We do have a lot of Treasury debt to underwrite this week and then very regular Treasury auctions for as far as the eye can see. This debt will need to be underwritten without the Fed’s checkbook (presence of the Federal Reserve) in the marketplace as its quantitative easing program is now complete.

      Can and will private investors step into the market and buy this debt at these rate levels? This is THE MOST IMPORTANT question facing the market in 2010.

      In my opinion, rates have to move higher given the overwhelming fiscal deficit and financing needs. As rates move higher, the economy and the equity markets will face another hurdle.

      Great question!!

  • Mike

    That makes things much clearer, thank you. Yes I agree that rates will have to move higher in order to encourage more private demand.

    I wonder how much longer China will provide funding for…

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