Interest Rate Roundup

Friday, June 01, 2007

The latest take on jobs and incomes

This morning, we got data on April income and spending and the job market in May. Here's a quick review of the highlights:

* Personal income dropped 0.1% from March, vs. expectations for a 0.3% gain. Personal spending rose 0.5%, above forecasts for a 0.4% rise. The savings rate, as measured by Uncle Sam, dropped to -1.3% from -0.7% a month earlier.

* The core inflation measure embedded in the income and spending report was tame -- it rose 0.1% on the month (forecasts called for a 0.2% rise). That brought the year-over-year core rate down to 2% from 2.1%. This is the lowest YOY rise since February 2006.

* But before you break out your bond market pom-poms, consider what the fresher data for May showed -- a 157,000 gain in non-farm payrolls (the Bloomberg forecast: +132,000) ... a 0.3% monthly rise in average hourly earnings ... and an uptick in the year-over-year rate of change in earnings, to 3.8% from 3.7% a month earlier. The unemployment remained at a relatively low 4.5%.

* Job creation was strong in the service industry (+176,000), led by gains in things like health care, education, and leisure. The manufacturing sector shed jobs yet again (-19,000), while construction employment was unchanged.

Net/Net, the report confirms other recent readings that show the economy picked up a bit more steam in May. Bonds are reacting by selling off 11/32. Ten-year yields have breached the 4.9% resistance I mentioned earlier, recently hovering around 4.92%. If we close here, it opens the door for a move to the old yield highs around 5.25%.


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