The initial reaction to the all-important Jobs report on Friday was positive until you looked into the numbers. While March jobs created of 192,000 was initially viewed as a positive, analysts had expected at least 200,000 non farm payroll jobs and a decline in the unemployment rate to 6.6%. Instead, the rate remained unchanged at 6.7%. The initial "euphoria" gave way to the reality that on Thursday the Labor Department reported an increase in first time unemployment applications of 16,000 to 326,000. As stated in prior commentaries a worker applying for unemployment benefits no doubt "lost" a job. Why the investment community does not correlate the weekly number with the monthly number remains in question.
The labor force participation rate for workers age 16 and older is down to 63.2%. This week Federal Reserve Chair Janet Yellen said while the labor market has "strengthened considerably" from the recession’s pit, "the recovery still feels like a recession to many Americans." That being said the question of "underemployed" remains a factor. Families have had to make do with less income than the previous job once they found one that is. Also, the tax they pay on the reduced income has to impact the Federal Government come April 15.
With reduced "income" I fear the Administration, in order to sustain it’s current spending level, will once again go to the "well" and ask for a budget increase or introduce cuts in entitlements. One hears much talk about the Social Security system and Medicare going broke, but no mention of the "welfare program" going broke. When President Roosevelt established the "welfare work program", the unemployed were required to work on infrastructure in order to get that "welfare check". That program does not exist today and the numbers of people on welfare is, in my opinion, is "choking" the system. For now we see, as mentioned by Fed Chair Yellen, the psychology of "recessionary thinking" and that could cause an economic "episode". We warn our readers against complacency and recommend a re-assessment of their financial condition. Now for some actual information.
June Treasury bonds closed at 132 30/32nds, up 23/32nds on Friday after the disappointing jobs data which was below analyst expectations. Another factor in the rally was the sharp decline in equities where money moves from risk assets to the relative safety of U.S. Treasuries. The employment data left no doubt the Federal Reserve would continue its stimulus program with no sign of rate increases going forward. Some European yields also declined as economies weaken and concern over the Ukraine situation prevails. We could see further back and forth price action in U.S. Treasuries. Hold "strangle" spreads.