U.S. ECONOMICS: Miller Tabak Not Sure About Selling Stocks and Bonds on Payroll Reading


Andrew Wilkinson, Chief Economic Strategist at Miller Tabak & Co. LLC, asks should we look to sell stocks and bonds on the payroll reading? He answers his own question in saying he is not sure about that.

Sure, he says, the reading is well above consensus at 204,000 and contains a net positive three-month revision of 60,000 AND at the time when the government shutdown was supposed to hinder jobs growth. But, he adds, the reality that has become plain in subsequent reports is that the impact of the shutdown is much less than people feared with businesses retaining great optimism about the future. Looks to him like hiring did not freeze as feared. The net impact is that the three month pace of hiring is now back to 202,000 or about 50,000 where it had recently fallen to. That, he says, brings the taper discussion back full circle.

He notes the Fed has long argued that on a cumulative basis the net improvement in the employment picture is significant enough to think about reducing the flow of purchases. And now, he says, we are back to the 200,000 marker once again and despite being fazed by fiscal fogs, the discussion is likely to happen soon.

However, according to Wilkinson, this is not likely to be as bad for bonds as the knee-jerk reaction suggests. Wilkinson has argued that the forward-guidance measure is filtering through and is replacing the onset of tapering as the preeminent market driver. We have seen, he says, what the impact of a spike in yields is. Meanwhile, he adds, we have learned that optimal control settings will leave the fed fund rate lower than anyone had anticipated. Yields need not take it in the neck today, while stocks will soon start embracing the rosier outlook for consumption from better payroll growth, he says.

Wilkinson notes the establishment survey showed the goods producing sector added 35,000 jobs in October with around half (19,000) coming from manufacturing. Does the ISM manufacturing reading now make sense?, he asks. Wilkinson notes construction added 11,000 positions in spite of the impact rising mortgage yields had on home buying activity over the summer. Retailers added 444,000 positions, while professional and business services added 44,000. Only wholesalers and government shed 5,000 and 8,000 workers respectively.

Wilkinson says the household survey continues to leave the Fed with its employment quality conundrum. The unemployment rate rose by one-tenth to 7.3% and the participation rate fell to 62.8% from 63.2.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

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