by Jason Norris
Director
Equity Research and Portfolio Management
On Friday, stock and bond investors wrestled with conflicting conclusions from jobs reports. Two surveys report jobs data: the payroll survey and the household survey. The payroll survey showed a gain of 272,000 new jobs. However, the household survey showed a loss of jobs and an uptick in the unemployment rate to 4.0%. Typically, more weight is given to the payroll survey due to its larger sample size (400,000 households) in counting the number of available jobs. Comparatively, the household survey samples 60,000 households but counts the number of employed individuals within that household. Regardless of your preferred method of measuring employment, we believe the main takeaway is that the jobs market isn’t as tight as it has been in the last few years.
To learn more about the payroll and household surveys from the Federal Reserve Bank of San Francisco, click on the button below.
This “loosening” of the employment picture was also highlighted earlier this week in the Job Openings and Labor Turnover Survey (JOLTs) program report, showing continued easing. Job openings in April fell to 8.1 million, down 1.8 million from last April to the lowest level since February 2021. One important metric in the JOLTs report is the number of people quitting their jobs.
Source: Bureau of Labor Statistics
The number of people quitting their jobs (“Quits”) has continued to fall. It peaked at 4.5 million in April 2022 and currently sits at ~3.5 million. Quits are important because upward wage pressure is strong when these numbers are elevated. Historically, wage growth for “job switchers” has been higher than that for someone who stays with their current employer. See the chart below.
Source: Atlanta Federal Reserve
Therefore, with the demand for labor slowly declining, workers are more likely to remain at their current jobs, easing upward pressure on wage growth, which is good for inflation and corporate profits.
Finally, approximately 1.5 million people were laid off in April. In economic expansion periods, 1.5-2.0 million people are laid off each month. Therefore, when we see headlines about company layoffs, a lot of it can be the natural churn in the labor market.
Trading Places
This week, investors received a benefit from the Securities and Exchange Commission that they may not know about. The agency changed the time to settle a trade from two days to one day for U.S. stocks, corporate bonds, municipal bonds and ETFs (i.e., the most common investment type in an individual’s portfolio). This change will reduce the credit, market and liquidity risks for securities transactions.
On an individual level, clients benefit by having funds available one day sooner when requesting a distribution from their account. On a market or systemic level, this shift will reduce much of the risk of failing trades that became apparent during the meme stock frenzy of 2021. During that brief period, many brokerage firms had to post additional collateral and some even limited trading of certain individual stocks to limit the risk that various trade counterparties could not make good on their trades.
Takeaways For the Week:
The yield on the 10-year U.S. Treasury spiked 0.1% on Friday. However, it was still lower for the week, settling out at roughly 4.4%, as economic data continued to be “not too hot and not too cold”
The S&P 500 rallied over 1% this week, resulting in year-to-date gains of close to 13%
Money Market Funds have been yielding around 5% for over a year now; in that period, the S&P 500 is up over 25%