Podcast: January 2010 Jobs Data

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

January’s jobs report showed a loss of 20,000 jobs for the month, as opposed to the creation of an estimated 15,000 jobs that was expected prior to the release. The economy has now lost approximately 8.4 million jobs since the recession began. The overall tone of the labor market remains negative, but there are some bright spots, such as a gain of 11,000 jobs in the manufacturing sector and an increase in the average number of hours worked per week. In addition, the increase in both hourly earnings and in temporary jobs should bolster employment in upcoming months. The labor market is on the mend but by no means healthy. These concerns were reflected in the downward revision to December’s report from a loss of 85,000 jobs to a loss of 150,000 jobs.

Even without the expansion in employment, the overall tone of the report was positive, headlining with the fact that the unemployment rate ticked lower to 9.7%. The household measure of employment also increased, raising the question of whether the peak in the unemployment rate has been reached. Although manufacturing gained 11,000 jobs, construction continued to feel the pain, shedding 75,000 jobs. State and local government shed 41,000 jobs, while U.S. census hiring only added 9,000 positions.

Early Friday morning, the Treasury market extended its two-day rally on the expectation that labor market data may disappoint market participants. Higher-than-expected initial jobless claims and continuing claims added fuel to the fire, but the rally reversed abruptly when the underlying tone of the report was more upbeat than expected. The Treasury curve steepened modestly and then reversed course again, as equities continued to show signs of weakness. By mid-morning, the two-year rallied approximately 5 basis points to 0.76% and the 10-year rallied to roughly 2 basis points to 3.58%.

Action in the Treasury market remains volatile in reaction to every data point released. It is hard to believe that this recent rally is sustainable—as the labor market and economy continue to show signs of improvement, demand for Treasuries should decrease. As this happens, we continue to feel that the curve between the two-year and the 10-year is likely to flatten, driven by Fed rhetoric and the unwinding of stimulus measures. We expect a volatile environment to continue in the near term.

If you have any questions about this podcast or the financial markets, please contact your SEI representative. Thank you.