Podcast: March 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 March jobs data, including the nonfarm payroll number and the market’s initial reaction.

The hope that the unemployment rate peaked in the fourth quarter at 10.1% continues to hold— at least in the near term. At some point we may see a modest tick higher, as temporary employment created to spur economic growth comes to an end and currently discouraged workers attempt to reenter the workforce. What is certain is that the labor market remains uncertain. March’s payroll report brought with it an extreme amount of hype, anticipation and nervousness. This number more than others is murky due to census hiring and weather-related distortions from February. According to market surveys prior to the release, the economy was expected to create 184,000 jobs. There has been a lot of talk about creating permanent jobs, but there are doubts about whether companies are ready to hire. There is optimism in the marketplace as temporary hiring has grown over the past quarter, but in the end, companies remain tentative.

March’s payroll report showed that 162,000 jobs were created. This was below market expectations, but overall we view this number to be positive. Census hiring played a smaller-than-expected role in job creation. The construction sector turned the corner, creating 15,000 jobs, the first time it has shown growth since June 2007. The service and manufacturing sectors added 82,000 and 17,000 jobs, respectively. Temporary help continued to add jobs, setting the stage for future job growth. It is important to differentiate between growth within the private and public sectors, since growth within the private sector needs to outweigh growth from census hiring and the public sector in a healthy economy. Job growth needs to remain consistently strong before the recovery in the labor market can become self-sustaining. We are in the midst of a recovery, but it is too early to say that job creation is sustainable. The unemployment rate held firm at 9.7%, which is a good sign, but needs to be kept in perspective since it is still at such a high level. The increase in average weekly hours worked was another sign of expansion.

Markets seemed nervous and the Treasury market traded tentatively leading up to the release of the employment data. Prior to the release, Treasury yields moved higher, holding the trend that started in early in March. The 10-year moved higher by 16 basis points to trade at 3.87%, which puts the yield back in the range of 3.75% to 4.25% we have expected for 2010. The release of the labor statistics combined with the job growth data punched up yields in the Treasury sector. The 10-year closed at 3.94% on Friday, with the front end moving higher as well. By mid-morning, the two-year was off 3 basis points to yield 1.08% and closed at 1.10%. The 30-year underperformed the curve, with yields selling off by 8 basis points to yield 4.80%.

A shift occurring within the Treasury market is pushing yields higher. Trading will remain choppy and range-bound with an upward bias. The labor market and economy continue to show signs of improvement, and sovereign debt concerns have been reduced, so the desire to own Treasuries should start to wane. As this happens, we continue to believe the front end of the yield curve will likely flatten, driven by Fed rhetoric and the unwinding of its stimulus measures.

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Thank you.