UST Yields, Reverse Repo, And…Payrolls

February’s cold winter blast throughout the Southern United States was supposed to have been the extent of the weakness. The unusual and unusually severe freeze caused a great deal of havoc, making its way very quickly into economic data. The recovery was said to have been on a winning streak (vaccines, gov’t payments, etc.) so it seemed the easiest correlation more likely the explanation.

In terms of the Establishment Survey, or payroll report, this didn’t really happen. The low-point ending up having been December, last year’s summer slowdown combining with second (or third) wave pandemic fears caused employment to shrink significantly (currently believed to have been -306,000) in that month.

From that ebb, the labor market roared back barely stopping in February (+536,000) before the big jump in March (since revised downward to a still impressive +785,000). The trajectory seemed clear enough once employers nationwide cleared the cold snap. Normalcy within perhaps a few months, maybe half a year.

The “whispers” for April were talking like in exactly that way, that the monthly employment change might come out better than a million. It didn’t. Instead, the BLS said the labor market severely underperformed at (since revised) +278,000.

Not to worry, all would be made up in May, with rumors pegging the monthly gain again into seven figures while mainstream estimates were hoping for between +650,000 and +700,000 (strengthened by ADP’s private figure from this past Wednesday which was much better than expected).

Today, the BLS did it again. At +559,000, just +492,000 private, this makes two in a row when reopening appears to be the only factor at work (pun intended). That’s not what’s supposed to be happening right now, instead the combination of those non-economic impediments being removed so that the rest of the economy fully set free to recover actually does.

Because of this repeat, now explanations are being demanded and given out in typical (2018-style) fashion. LABOR SHORTAGE!!!!

The recovery would be doing so much better, very much like what had been projected starting from February and surging into March’s headline estimate, except, so the story goes, Americans have grown too fat and lazy on the government dole. Unemployment bonuses and the like, helicopter payments with more promised, closed schools, why work when the feds will pay you as much possibly better to sit home?

Companies would hire more, evidently, if more would show up for interviews.

Undoubtedly, this situation applies to perhaps millions. It cannot, however, explain a few facts. The first is how more American workers have been pleading with their local authorities to more completely open everything back up so that they can go back to work. There’s even be a modicum of protestation on this point. However many might not want to go back, there’s been more who would like nothing more than the opportunity.

Second, notice the timing here; where have we seen a transition from reflation-like as in the job market to curious, “unexpected” not reflation-like, and this taking place in that same February to March timeframe? Yes, the Treasury market. Reverse repo and all that fuss.

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Disclosure: This material has been distributed for informational purposes only. It is the opinion of the author and should not be considered as investment advice or a recommendation of any ...

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