Impressive Payrolls Reaction

Analysis of the Report

The analysis of the recent payroll report was straightforward due to its clear indications of strength. The total jobs figure was impressive, with the private sector accounting for the entire beat. This is an encouraging sign as it is preferable for job creation to occur in the private sector.

Positive Revisions and Seasonal Adjustments

The report also included significant positive revisions, which is always a good sign. This supports the belief that the Bureau of Labor Statistics (BLS) has adjusted their models and is no longer consistently overstating jobs as they previously were. However, there are still concerns about the accuracy of seasonal adjustments, with winter jobs potentially being overstated and summer jobs understated. This report seems to align with these observations.

Wage Pressure and Unemployment Rate

The report also showed upward pressure on wages, and an unemployment rate of 4.052%, which was nearly rounded down to 4%. These figures may cause the Federal Reserve to reconsider their policies.

Bottom Line

The report points to higher yields, with expectations that 10s will breach 4% as we move into auctions. The data also suggests a 'higher for longer' scenario. This means that the Federal Reserve's cuts should be slower, and the current neutral rate is likely well above 3%, as evidenced by the economy's steady performance with 5% yields for over a year. However, the initial positive reaction in the equity market may be short-lived.

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