The Economy in 3-D

Divergences, Discrepancies, and Delusions

I have to admit that if you are a bond bull like I am, it was the wrong number that showed strength last Friday. The markets will always bow down to the holy grail of nonfarm payrolls because that is the number that is nearest and dearest to the Fed’s heart. And so, yet again, there was a reversal in Treasuries on Friday, because the most important correlation to the 10-year T-note yield (and the only one that commands a 90% correlation) is market expectations of Fed policy. Nothing matters as much as the cost of carry. So, a March cut has been taken out of the picture (the January Fed meeting should have already looked after that) and now even May is being opened up for debate.

But I also have to say that the +353k headline number on Friday defies reality because we already know that the ADP was +107k, and has a 100% response rate, whereas the Establishment Survey collection rate was close to a historical low in January, at 56%. At the same time, we also know that the Household Survey was down -31k, and when you put that metric on a population- and payroll-adjusted basis, it was down more like -175k — and that followed a -758k plunge in December, with all the decline and then some in full-time jobs, which are down -1.7 million since last June while part-time employment is up +1.6 million.

Even if you believe the Establishment Survey, what it doesn’t tell you is the full-time/part-time split. The Household Survey shows that since the middle of 2023, we have created zero jobs, and even worse, we have furloughed full-time staff to part-time. Now, the only thing that was corroborated in the Establishment Survey was the -0.6% nosedive in the workweek, so if you are a buyer of the nonfarm payroll report, then what businesses are doing is hiring en masse, and then cutting hours worked for everyone at the same time to keep their labor costs contained. There is no other explanation.