The new new bull market in bonds that began in early July picked up steam yesterday, pushing the yield on the benchmark 10-year Treasury down to 4.73%–the lowest since March. As recently as late June, the yield was nearly 5.25%.
A casual observer might wonder if something dramatic had changed in the last two months to convince bond traders to buy, buy, buy. Yes, there’s been more than a little evidence that the real estate boom is becoming something less, although the jury’s still out on whether that will deliver a fatal blow to the economy or just a mild slap on the wrist.
Adding to the complication of figuring out what lurks (or doesn’t) around the corner is this morning’s update on August employment. For those looking for decisive evidence that an economic slowdown of some magnitude is upon us, the latest batch of numbers is sure to disappoint. The jobless rate, for instance, slipped a bit last month to 4.7%, or near the lowest levels in the past five years.
Meanwhile, the consensus outlook predicted a rise of 125,000 in nonfarm employment for last month, according to TheStreet.com; the actual number came in slightly higher, at 128,000, which is also higher than July’s 121,000 increase.
The fact that the labor market continues to hold up may be frustrating for some who are expecting the apocalypse, but numbers are numbers. And that includes the fact that the nonfarm payroll reached yet another record high last month: 135.5 million. True, the August advance is up only 1.3% from a year ago–the slowest annual pace of increase in the monthly numbers since last October, as illustrated in the chart below. Nonetheless, the economy is still growing and creating new jobs, and at a rate that, while hardly extraordinary, is still within the range of recent history.

Adding yet another layer of optimism to today’s employment report is the implication that inflation isn’t accelerating. That, at least, should hearten the bond bulls and extend fresh credibility to the Fed’s recent decision to pause on hiking interest rates. The tepid rise in hourly earnings last month suggests that wage pressure on prices has moderated, at least compared with the much-higher pace posted in July.
For the moment, signs of a slowdown or worse have been put on hold. Tougher times may in fact still be headed this way for the economy, but bond traders will have to decide if they’ve overplayed their hand in betting that the American jobs machine is set to take a tumble. The data gods are sitting on the fence, and bulls and bears alike must sweat it out until clear signals emerge. Suffice to say, clarity is arriving at its own sluggish pace.