The jobs data has generally been weak, and the payroll data released this morning reflects this assessment.

There is always a “random” element to NFP. Lately that has been noticed by everyone. Revisions. Birth/Death model. Household versus Establishment. Low levels of survey response rates. New head of BLS. What would the government “want” the data to be? (lots of jobs to say how well things are going, or fewer jobs to spur the Fed to action).

With so many questions circulating around NFP data quality, the market is paying more attention than usual to some other data points:

• ISM Employment is only 43.8.
• Job openings dropped and is near post-Covid lows. The QUIT rate remains at 2%, which I view as a “crowd sourced” indicator, and is hovering at a weak level of 2%.
• ADP came in at 54k. That would be at the low end of what is viewed as the rate required to keep unemployment unchanged (I keep hearing the number is somewhere between 50k at the low end and 100k at the high end). Separate from that, it is just not a number that inspires a “wow” factor. Maybe that isn’t important to economists, but I think it is important to the administration, and to how the media will portray the number to the nation.
• ISM Services Employment is only 46.5. For an economy that relies on services, that isn’t particularly strong and I think it ties in well with the low QUIT My view is that the QUIT rate best reflects lower paying jobs, typically in the service industry.
• Annual Payroll Revisions is getting more attention than usual. Later this month, the BLS will release revisions for the Q2 2024 thru Q1 2025 period and chatter is that the number will show that 500k jobs have been revised away (at the low end), with some predicting as many as 1 million. That would be further ammunition for the Fed to cut sooner and more frequently than thought.

In response to weak data, bonds have been rallying – with the 10-year back to 4.15%, the lowest since late March (prior to Liberation Day). WIRP is telling us that a 25 bp cut is a certainty, but is not pricing in much of a chance of 50. I remain in the 75 to 100 bps in 2025 camp.

Yield curves flattened a little this week. Not materially, but makes me think it is a good opportunity to read last weekend’s How to Get Yields Lower.

Stocks have clawed back to last Thursday’s levels, presumably on the hope that the Fed will be more active. But should they? Are job issues temporary? Will they be fixed by rate cuts? With so much policy uncertainty continuing, could this just be the first sign that the uncertainty is hitting the economy? Tariffs and other policy matters may be impacting us. It will take time for the full effect of policies to be felt, but we could be in for some trickier economic data. Maybe more than rate cuts can offset?

AI spending remains a key driver.

If you aren’t at all worried about China’s Military Parade or the meetings between Xi, Putin, and (possibly most importantly) Modi, maybe you should be, at least a little. The World Order is changing, or at least there is an attempt to change it. We have always argued that India is a huge opportunity for the U.S. While it is “normal” for India to engage with others, it does make some wonder about the way we’ve handled tariffs and some other foreign policy issues and how this approach could be impacting how India views dealing with the U.S. relative to others.

While India is the most important (economically) on that front, it is also a question for many countries. Even those who signed “deals” with the U.S. Are they trying to figure out ways to deal with a nation that seems more erratic/quick to change its mind than they are used to dealing with?

The American Brand is changing and others are either trying to take advantage of that, or at least thinking about what it means going forward.

My view is that the “low yields are great for stocks” crowd may be forgetting that a recession (or at least economic weakness) is bad for stocks, even with lower yields.

We will expand on this in this weekend’s T-Report. In the meantime, a week in Ireland has been amazing!

DISCLAIMER