The 10-year Treasury yield continued its rapid descent on Wednesday after estimates from payroll processor ADP showed a third straight month of soft private-sector job growth. At this rate, it looks like Friday's official jobs report could see a dramatic convergence — with the unemployment rate rising to 4% and the 10-year Treasury yield falling to 4%.
Yet there are a few indications that the jobs report may be solid enough to at least temporarily slow the rally in government bonds amid growing expectations for a Fed rate cut in March.
10-Year Treasury Yield Reacts To ADP
On Wednesday morning, ADP reported that private employers added 103,000 jobs last month, below Wall Street's 123,000 consensus forecast. October job gains were revised down by 7,000 to 106,000. ADP data shows the private sector has added a monthly average of just 98,333 jobs over the past three months.
Following the ADP data, the 10-year Treasury yield slid 6 basis points to 4.11%, the lowest level since Sept. 1. The 10-year yield closed as high as 4.99% on Oct. 19.
On Tuesday, the 10-year bond yield tumbled 12 basis points as October job openings fell much more than expected.
The big drop in Treasury yields over the past several weeks has come as economic growth slows after a blistering Q3 and inflation data shows the Fed's 2% target looks increasingly in reach.
Some observers see the plunge in Treasury yields as a sign that the economy is headed for trouble. That might explain why the stock market has taken a breather in recent days, despite Treasury yields continuing to fall. The S&P 500 edged down 0.1% in midday stock market action.
Yet the fall in yields and the bearish interpretation for stocks may get something of a reality check on Friday.
Be sure to read IBD's daily afternoon The Big Picture column to stay in sync with the market's underlying trend and what it means for your trading decisions.
Jobs Report Forecasts
Economists expect the jobs report to show a net gain of 180,000 jobs, including 150,000 in the private sector. The unemployment rate is seen holding at 3.9% as average hourly wage growth ticks down to 4% vs. a year earlier.
Surprises could go either way. Drew Matus, chief market strategist at MetLife Investment Management, notes that the unemployment rate was 3.93% in October, which rounded down to 3.9%. That means it wouldn't take much to raise the jobless rate to 4%, a key "psychological level that the market has not seen since January 2022," Matus wrote.
However, Ian Shepherdson expects the jobs report will show net hiring of 275,000, including 225,000 private-sector jobs. That includes a 50,000 rebound from resolution of the United Auto Workers and Hollywood strikes.
"The Homebase and ISM services employment numbers point to a much bigger increase in November payrolls," Shepherdson wrote on Wednesday, downplaying the soft ADP data. Still, he added, "They (Homebase and ISM services) aren't always right either," making the jobs report hard to forecast.
November typically brings a small business slowdown, Homebase said in a Dec. 3 post. "But this year sees increasing wages, low employee turnover, and steadier employment activity than years past."
The payroll firm's data shows the number of employees down 2.1% vs. January levels. That compares to a 3.6% decline in November vs. January in 2022 and a 6.6% drop in 2019.
BLS Jobs Data Vs. ADP
In general, economists don't put too much stock in monthly ADP data. Deutsche Bank's Brett Ryan noted on Monday that while ADP isn't a great guide to the Bureau of Labor Statistics (BLS) official monthly numbers that follow, it "tends to track annual private payroll growth."
That could mean that seasonal or other factors often lead to ADP data underestimating or overestimating monthly BLS data by a significant amount. However, over the 12 months through October, ADP estimated 2.7 million private jobs added vs. 2.3 million in BLS data. Conceivably, ADP's recent soft data could reflect earlier jobs data that came in hotter than official BLS numbers.
