It was a heavy economic slate for the week with market narratives shifting by the day.
Jobless claims have stabilized in recent weeks. This is likely one of the most important economic data points in the coming months as it is a lead on future employment reports. The Bureau of Labor Statistics reported that 528,000 non‐ farm jobs were added in July.
This was double the expectations.
This caused bond yields to jump in anticipation of continued 75 basis point hikes from the Federal Reserve. Equities knee‐jerked lower but regained some losses by day’s end. Unfortunately, the internals were not as strong with full‐time jobs weak, workers with multiple jobs jumping and significant smoothing.
The Establishment Survey is designed to be smooth.
The Household Survey is not designed to be as smooth.
It is sending a completely different message. Over the last four months the Establishment Survey has reported that 1.68 million jobs have been created, but the Household Survey says 449,000 jobs have been lost.
The CPI came in flat versus the prior month. This was below expectations and by far the lowest reading of this cycle. Year‐over‐year CPI is down to 8.5% and core CPI is down to 5.9%. Likely these numbers will be less relevant to the market as it will now focus on monthly changes and look for readings at or below 0.3% per month in determining the Fed reaction function.
It is important to remember the numbers are not as important as the policy response to the numbers. The Fed has communicated continued tightening of financial conditions until there are sustained monthly readings of 0.2‐0.3%.