More Data Points to a Slowing Labor Market

More Data Points to a Slowing Labor Market

• The Treasury market is drifting around unchanged this morning and that should probably be the story for today as there are no economic releases of note until a 5yr Treasury auction this afternoon. That new supply may keep the market somewhat heavy, but investors are likely waiting the wings to grab the last 5yr auction before the rate-cutting cycle commences. Currently, the 10yr is yielding 3.83% up 1bp on the day, while the 2yr is yielding 3.87%, also up 1bp on the day.

• Investors will take a reprieve today from the question of whether the September rate cut will be 25 or 50bps as Nvidia’s quarterly earnings results post-close will take most of the oxygen in the room today. While that’s an equity event, any volatility around the results could spillover into Treasuries, but at least it does provide us a one-day distraction from the ongoing rate-cutting debate. On an otherwise slow summer Wednesday we’ll take the distraction.

• In addition, there’s nothing on the data calendar today that will move yields much other than a 5yr Treasury auction this afternoon, but after the successful 2yr auction yesterday, today’s event isn’t likely to create too many ripples in a late summer, glassy lake environment. With rate cuts looming, investors should be eager to grab today’s yields before they move any lower.

• One bit of data we did get yesterday did catch our eye and it was the Conference Board’s latest read on consumer sentiment. While sentiment edged higher, as did expectations, what caught our attention, however, was the jobs plentiful vs. jobs hard to get measure which narrowed for a sixth straight month to a three-year low (see graph below). It’s another indicator, albeit second tier, showing slowing momentum in the labor market. Powell referred to the declining quits rate, and a narrowing in the job openings to unemployed from the JOLTS report, as evidence of cooling in the labor market and this indicator implies the same.

• Tomorrow’s weekly jobless claims, however, are expected to be in-line with recent readings (232k expected vs. 232k the prior week) which would indicate little if any pickup in layoffs. The confluence of recent employment data points to a labor market that is clearly shifting into a lower gear but with little hint of a Wiley Coyote off-the-cliff moment. That points to a rate cut in September more in the 25bps range, but the final arbiter in that regard will be the August jobs report due a week from Friday.

• Early expectations for the August report are for a steady-as-she-goes result with 155k headline job growth and unemployment dipping a tenth to 4.2%. If that comes to pass it certainly would be another arrow in the quiver for the 25bps rate-cutting camp.

• Before then, this Friday brings the last bit of inflation data for July with the Fed’s preferred PCE numbers via the Personal Income and Spending report. Expectations are for core PCE to round to 0.2% but the question is whether it’s a “high” 0.2%, say 0.24%, or a “low” 0.2% , say 0.16%. In any event, unfavorable base effects are likely to more the YoY rate from 2.6% to 2.7%. That said, with CPI, PPI, and import/export prices already in hand, analysts do a pretty good job in estimating PCE, so we don’t suspect a big miss. Even so, it would take quite the upside surprise to upset the September rate-cutting plans as the full employment mandate is clearly in the driver’s seat as to policy-setting at this point.

Conference Board’s Jobs Plentiful Minus Hard-to-Get: Sixth Straight Decline to 3yr Low