The latest jobs report, which showed 162,000 nonfarm payrolls added in August, is actually bullish for bonds because the apparent strength is driven by low-wage seasonal hiring, while real wages are falling. Hospitality and local government education accounted for 103,000 of the jobs, nearly two-thirds of the total, while the high-wage information technology sector lost jobs. Average hourly earnings rose 0.3% in August, but consumer prices rose 0.4%, and over the past 12 months, earnings rose 3.1% versus 3.4% inflation. The labor share of GDP fell to a record low of 52.8% in the second quarter, and the federal deficit nearly quadrupled in July to $432 billion. These factors suggest the Federal Reserve's expected rate hikes, possibly up to 4.5%-4.75%, could calm inflation fears and lower long-term yields, benefiting bonds, especially TIPS.
Weak wage growth and falling real wages suggest Fed may not hike as much, lowering expected policy rate.
Weak wage growth and falling real wages suggest Fed may not hike as much, lowering long-term yields.
