• It had been a ritual for years during jobs week that the ADP Employment Change Report would be released on Wednesday and provide a bit of a heads up for the Friday BLS jobs numbers. Alas, ADP began to vary wildly from BLS numbers during the pandemic and recovery, so they took it down last May to retool the methodology (with the help of Stanford Digital Economy Lab), and provide additional wage information.  The just released August report represents the first look at the retooled effort.


  • For August, ADP reported 132 thousand private sector jobs, short of the 300 thousand expected. The prior month, ADP reported 268 thousand which compares to the BLS private sector gain in July of 471 thousand. Payroll gains were concentrated in leisure and hospitality, trade, transportation, utilities, and construction. Also, service-producing jobs took the lion-share at 110 thousand while goods-producing took just 22 thousand. The Friday BLS jobs report is expected to show private payrolls climbing by 300 thousand. So, the ADP miss puts investors on notice of a possible miss Friday, but the newly released report won’t get that much respect until a few months have passed.


  • While a weak jobs report may add some fodder to the 50bps rate hiking camp, a weak jobs report is exactly what the Fed wants to see right now so we doubt it really sways that discussion much. Instead, it will be the September CPI Report due on September 13th that will be a bigger factor in the 50 to 75bps hiking decision. And with markets already leaning towards the latter, the Fed is probably in the position of looking for reasons why not to lift it 75bps.


  • The new ADP report also included wage information for the first time. Those who changed jobs in the last year experienced a 16.1% pay increase YoY, more than twice the 7.6% YoY gain for those that stayed at their jobs. No wonder we’ve seen a high Quits Rate in the JOLTS reports for the past several months!


  • Higher-than-expected inflation readings across Europe, mainly driven by rising energy costs, put global bonds on the back foot this morning, and that includes Treasuries, but the moves are modest. The 10yr is currently down 3 ticks to yield 3.12%, so still an in-range move, but there has been more backpedaling since Jackson Hole.


  • The inflation releases from Europe (Overall CPI 9.1% vs. 9.0% expected and 8.9% prior month. Core CPI 4.3% vs. 4.1% expected and 4.0% prior month) shows inflation remains more of a problem there than in the US, especially with the energy dilemma created by the Ukrainian/Russian war. With inflation rates still moving higher that will probably get the ECB to hike by 75bps next week, so the synchronized global tightening plan looks to be fully engaged. But with the Fed’s hiking campaign still far from finished, the global impact of those hikes will make global economic conditions worse before they get better. We’ll have more to say on that matter in future Market Updates, but it revolves around the old quip that when the US catches a cold, the rest of the world gets pneumonia.


Source: Bloomberg


Agency Indications — FNMA / FHLMC Callable Rates

Maturity (yrs) 2 Year 3 Year 4 Year 5 Year 10 Year 15 Year
0.25 3.47 3.54 3.53 3.57 3.67 4.13
0.50 3.46 3.51 3.47 3.46 3.53 4.02
1.00 3.45 3.48 3.44 3.42 3.43 3.89
2.00 3.47 3.38 3.34 3.32 NA
3.00 3.29 3.25 NA
4.00 3.21 NA
5.00 3.17 NA
10.00 NA

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Published: 08/31/22 Author: Thomas R. Fitzgerald