Podcast: December 2009 Jobs Data

Welcome, my name is Sean Simko. I am Managing Director of SEI Global Fixed Income Management. Today’s commentary focuses on December’s jobs data, including the nonfarm payroll number and the market’s initial reaction.

The economy has lost over 7 million jobs over the past two years. There has been a steady decline in the number of jobs lost each month over this timeframe, though, showing that employment is on the mend but by no means healthy. The rate of loss in the job market topped out in January 2009 with a loss of 741,000 jobs for that month. Since January, the labor market has shed over 3 million jobs.

December’s report continued the trend, as the nonfarm payroll number dropped 85,000. This result disappointed the market, since the expectation was for the number to come in unchanged or even to the upside. Overall, the report was a mixed bag, with the overriding tone continuing to be negative and the unemployment rate holding steady at 10%. However, a glimmer of hope could be found in November’s revision from a loss of 11,000 jobs to an increase of 4,000, which was the first time we have seen job growth since December 2007. Temporary help rose for the fifth consecutive month; short-term hiring created 47,000 new jobs, bringing the total to 166,000.

Still, most companies are not at the point where they feel comfortable enough to hire. Manufacturing lost 27,000 jobs in December, and construction continues to feel the pain, shedding 53,000 jobs. This unexpected downturn should be a wake-up call to the government to direct its stimulus efforts toward the job market. As long as employment remains weak, the consumer will keep paring back spending, hindering the economic recovery.

The Treasury market gyrated throughout the week, prior to the report’s release. Early in the week, the market rallied as buying prevailed, moving prices higher off of recent lows. This trend reversed abruptly mid-week, as participants started positioning for a better-than-expected labor report. This move was short-lived, as payroll data caught the market off guard, creating a strong bid. The Treasury curve immediately steepened modestly, as the disappointing jobs data will most likely cause the Fed to wait before beginning to remove its quantitative easing programs. The two-year rallied approximately 6 basis points, and the 10-year rallied roughly 3 basis points to 3.79%.

The action within the Treasury market was expected. The rally driven by the labor data is not likely to hold, sending Treasuries back to pre-payroll report yields. One thing is for certain: the Treasury sector will remain choppy as economic data continues to be mixed. The two- to 10-year curve is likely to flatten over the next few quarters, driven by Fed rhetoric and the unwinding of its stimulus measures. The long bond should continue to feel pressures from the ballooning deficit and upcoming supply.

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