Evening Brief – 10.05.23
ADP, BLS, or DOL – Who’s Right?
The number of Americans filing for the first time for unemployment benefits remained at year-to-date lows of 207K last week, about in line with the 205k the previous week. The 4-week moving average was 208k, down from 211k the previous week. Continuing claims totaled 1.664 million, compared to an estimate of 1.675 million.
Goldman Sachs notes that the ongoing seasonal distortions have increasingly weighed on the level of continuing claims over the last six months, and they now anticipate that reversing those distortions will “exert a cumulative boost of 375k to the level of continuing claims between the end of September and March.”
The apparent disparity between jobless claims and ADP and BLS payrolls data is mind-boggling. ADP and nonfarm payrolls have been heading down in recent months, while initial jobless claims, which have been trending not just higher, but towards their highest level on record.
The latest ADP estimate of US payrolls for September shows a similar picture, prompting concerns that Friday’s nonfarm payrolls report (estimated 170k) will trigger a new caution.
“Friday’s payrolls data, and next week’s inflation number will decide whether the 10-year Treasury yield goes up to 5% or down to 4.5%,” Societe Generale strategist Kenneth Broux said. A higher-than-forecast jobs number could trigger “another wave of dollar-buying and bond-selling.”
Despite early signs of market calm on Thursday, there is still considerable pessimism about the long-term economic impact of higher-for-longer interest rates. In a note, Barclays analysts predicted that global bonds would continue to decline until equities fell further, reviving the appeal of fixed-income assets.
“There is no magic level of yields that, when reached, will automatically draw in enough buyers to spark a sustained bond rally,” analysts led by Ajay Rajadhyaksha said.
So, just when we thought the soft-landing scenario was coming to fruition, the bond market threw a spanner in the works. Perusing the latest headlines suggests a recession in the near term is again high on the list. Bloomberg highlighted the new thinking today by reporting: “Fed’s Bid to Avoid Recession Tested by Yields Nearing 20-Year Highs.”
The recent rise in Treasury yields represents a fresh headwind for the economy. It’s still unclear whether this is the event that propels the economy into an NBER-defined recession, but it’s obviously an element that isn’t helping.
Meanwhile, DoubleLine Capital founder Jeff Gundlach posted on X earlier this week: “The US Treasury yield curve is de-inverting very rapidly. It was at -108 bp a few months ago. Now at -35 bp. Should put everyone on recession warning, not just recession watch. If the unemployment rate ticks up just a couple of tenths it will be recession alert. Buckle up.”