Posts Tagged ‘long-term bond rates’

Employment report: Black and white is always gray

13 July 2013

Has the dust settled yet on last Friday’s BLS employment report? The big news was that the economy generated 195,000 new jobs in June, better than expected, and revised data show 70,000 more new jobs in April and May than previously reported. The basic unemployment rate was unchanged at 7.6%, but the new 265,000 jobs were enough to set the media and markets aflutter. Most articles I saw hailed the jobs news as fabulous. The S&P 500 had a good day, up 1.6%. Ten-year Treasury bond rates shot up 21 basis points (from 2.501% to 2.715%), in anticipation of higher interest rates to come, either from the natural forces of higher demand for credit in a stronger economy or from the Fed’s “tapering” its expansionary Little Depression-era policies.

The higher jobs numbers are welcome news, to be sure. Using the Atlanta Federal Reserve’s wonderful jobs calculator, at a rate of 195,000 new jobs per month, the US economy would be back to 6% unemployment by September 2015 and 5% unemployment by February 2017. Not great, but at least a visible end of the tunnel. For a long time the math was much more dismal — e.g., not until 2020. With the new revisions, the average job growth for 2012 is actually a bit better than June’s, 202,000. (Which, by the way, is better than in 2010 or 2011.) Plug that into the jobs calculator and we hit those targets three months sooner.

But that’s only half the story. The BLS employment report gives the results of two surveys: the “payrolls survey” of companies, above, and the “household survey” of individuals. Because these are two different survey populations, often the results are very different. The total number of jobs in the household survey rose by 189,000, but the number of new part-time jobs was more than twice that amount, 432,000. The difference is a whopping 243,000 drop in the number of full-time jobs. Ouch. The number of people working part-time because of “slack work or business conditions” rose by 352,000; the only good news here is that the number of people working part-time because they could not find full-time worked dropped a bit, by 69,000. (Hat tip: Paul Solman. The payrolls survey, by the way, does not distinguish between full- and part-time work, though it shows no change in average weekly hours, which implies no big change.)

This shift from full-time to part-time work may reflect a trend of employers’ increased preferences for part-time over full-time workers; for example, in the wholesale and retail trade sector, since 2006 full-time employment is down 500,000 while part-time jobs are up 1,000,000. Avoiding the “Obamacare” employer mandate for firms with 50+ workers would be another logical reason, and I wonder if this trend is a reason for the administration’s recently announced one-year delay of the mandate. But neither of these trends is new, so I don’t know why June would have seen such a particularly huge shift to part-time.

We see the same pattern in my favorite alternative unemployment rate, the U-6 unemployment rate, which includes part-time workers who would prefer full-time work and “discouraged workers” who want a job but have given up looking. Unlike the standard unemployment rate, which stayed at 7.6%, this comprehensive jobless shot up from 13.8% to 14.3%. Part of the rise was due to more discouraged workers, but most of it was from an increase in involuntary part-timers.

Overall, not a great employment report. It’s possible the household survey, which economists tend to regard as less reliable than the payrolls survey (even though it’s the one we use to derive the all-important unemployment rate), was just weird this month. For the past 12 months as a whole, we do not observe a shift from full-time to part-time work. The net increase in jobs was 2.4 million, and slightly under 10% of that was part-time jobs, about the same as for the labor force as a whole (i.e., including old and new jobs).

The bond market may have taken a while to digest the ambiguous nature of this report, as long-term Treasury yields, after rising sharply on the Friday of the report, lost half of that increase in the next week. The stock market continued to boom, perhaps because they see the rise in part-time employment as promising greater flexibility and profitability on the part of corporations. But of course these prices change for a lot of reasons.

 

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Fed talk is anything but cheap

24 June 2013

After last Wednesday, I bet Ben Bernanke can relate to this observation by George Carlin about his Catholic upbringing:

If you woke up in the morning and said, “I’m going down to 42nd street and commit a mortal sin!” Save your car fare; you did it, man!

It’s the thought that counts! The Fed didn’t “do” anything last Tuesday and Wednesday at its Federal Open Market Committee meeting. Bernanke’s concluding comments about the continuing slump were not much more specific than “This too shall pass, someday,” combined with the obvious point that normal times will bring normal monetary policies. The main news was that he thought normal times would come sooner than many people expected. But that was enough. Evidently, the bond market was expecting the economy to be flat on its back for most of the next decade: 10-year Treasury bond rates had lately been in the range of 2.1-2.2%, whereas the recent historical norm is about 5%. After Bernanke’s remarks, the rate jumped by 30 basis points (0.30% point) to a Friday close of about 2.5%. It jumped further this morning to 2.6%.

Two observations:

(1) Just as in Carlin’s church, Bernanke doesn’t actually have to do anything to tank the long-term bond market. Just thinking about it aloud is enough.

(2) The long-term bond market is really not the economy’s friend. What tanked the bond market is the prospect of interest rates rising a bit sooner and faster than expected, on account of the Fed reacting to a stronger economy. So in a weird sense the spike in bond rates is good news: Bernanke said better times were coming, the markets believed him, and they acted accordingly. Not to say that their action was malicious, just that it was predictable: if you are expecting interest rates to rise in the future, you should buy bonds in the future, not now.