We start CPI week with the 2Y at 3.93% and the 10Y at 3.96%. It is also the anniversary of the October 7th terrorist attacks on Israel, heightening tensions and risks for the day.
On Friday, headline jobs crushed expectations, coming in at +254K, prior revised higher. Unemployment falls to 4.1% and AHE beats at 0.4% MoM. About those rate cuts? Immeadite reaction in bonds was a double digit rise in yields and market expectations for a 25bp cut at the November FOMC meeting.
With respect to the Jobs report, there was some talk of the impact of college students dropping out of the workforce as they return to their schools as a factor in this report, but to me that sounds like something that happens every September and these economist should have already accounted for that in their estimates. I guess everyone will have to choose their narrative, but for the month of September at least it looks like job growth outpaced the growth in labor supply.
As many readers know there is also a narrative that these data points are all lagging and that therefore survey data might be more relevant. There was an interesting CFA blog post that attempts to identify what macroeconomic factors explain changes in business and consumer sentiment as measured in surveys. Their finding is that a lot has changed post-Covid:
"By the post-COVID period, an increase in GDP did not lead to an increase in consumer sentiment. An increase in unemployment also had no impact on sentiment. In fact, only two variables out of eight had significant power in predicting the direction of consumer sentiment: inflation and the stock market returns."
Speaking of sentiment and inflation, I thought this quote from economist John Cochrane was good: "Expectations are conveyed by institutional structures." You can read more about Cochrane's views on inflation and his fiscal theory, which he calls a theory of inflation which can also be the fiscal theory of no inflation, in his recent post here.
On the week ahead it's CPI week as the highlight.
Mon: Fedspeak
Tue: Small Biz optimism, Balance of trade, Fedspeak
Wed: Fedspeak, Inventories, 10Y Note, FOMC minutes
Thur: CPI, 30Y, moar Fedspeak
Fri: PPI, UofM prelim
XTOD: Higherer for Longerer island after one number is suddenly seeing a lot of fast ferry traffic from soft landing and recession islands. Aloha!
XTOD: I believe the Fed will now end Balance Sheet Runoff sooner than originally planned. They will cite an unexpected decline in bank reserves and end it at one of the next two FOMC meetings
XTOD: Maybe, just maybe, nominal income growing at 5% is a sign that labor markets were not cooling down.
XTOD: The problem is right there: highly skilled people can be used remotely. But you can't clean bathrooms, mow the lawns, plant trees, etc. with remote workers & rich countries are now structurally addicted to cheap unskilled labor. Structurally? Size of houses, yards, etc.
XTOD: Tonight or tomorrow morning, think of a decision you’ve been putting off, and challenge the fuzzy “what ifs” holding you hostage. If not now, when? If left at the status quo, what will your life and stress look like in 6 months? In 1 year? In 3 years? Who around you will also suffer?
https://x.com/dampedspring/status/1842506694342963423
https://x.com/ScottSkyrm/status/1842166753780007256
https://x.com/DavidBeckworth/status/1842185539660726413
https://x.com/nntaleb/status/1842160390391705937
https://x.com/tferriss/status/1842289926391660953
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