Could 2018 See 3.9% Unemployment for the First Time Since 1960’s?

The above link is a data set from the BLS for post World War II unemployment rates, and with the US economy currently sitting at 4.1% unemployment the night before the December ’17 non-farm payroll and unemployment data are set to be released, I keep wondering what an “annual” 3.9% unemployment rate will mean for the US bond markets and interest rates. (Readers need to remember too that this data can often be revised several years “after the fact” based on changes to GDP measurement, etc. I think these changes are called “benchmark” or “baseline” adjustments, and my understanding is that these adjustments can significantly impact GDP and employment numbers.)

The potentially-powerful economic catalyst will be the recently-signed tax reform bill and what that will mean for SP 500 earnings (should be a big positive although i suspect the stock market will eventually decipher what is one-time about the tax bill and what is recurring), but I also cant help but think that a surge in US GDP this year – if it happens – could do to interest rates.

Here (see link at the end of the sentence) is the tape of an TV interview done yesterday, with Bart Chilton, former CFTC Commissioner, on what could lay ahead for the US bond market. (

One caveat for readers though: since the SP 500 and stock market bottom in March, 2009, I thought interest rates would respond to the “return to global growth” easy monetary policies and that has been the wrong assumption.

The US bond markets haven’t seen a tougher year since 2013, when the yield curve steepened and the 10-year Treasury rose from 2% to 3%.

The US bond market is due for a tougher year, how tough will depend on what GDP growth can be seen with tax reform and a reinvigorated US business environment.

Here was the 2018 bond market forecast done in December ’17.

Readers should take all forecasts and opinions with a gigantic and healthy dose of skepticism.

If this forecast has to be amended, it will be. As a friend told me once, about forecasts, “It’s not your job to be right, it’s your job to make your clients money”.

Friday, January 5th’s employment data release will still be 2017 jobs data.

It won’t be until early February ’18 that we start to see a full month of employment data “post tax reform”.

One thing that has surprised a little is that jobless claims have actually started to creep higher the last few weeks, with this morning’s release printing 250k versus the 239k consensus number, per

Portfolio changes for 2018: 

  • This remains a secular bull market in US equities;
  • Some large-cap growth and Technology has been sold and large-cap, small-cap value has been added to client accounts;
  • Technology is more a benchmark weight after being more overweight in ’17 and the Financial sector weight was increased in late ’17, early ’18;
  • On the bond side, duration has been underweighted, as well as credit risk until interest rates rates rise and spreads widen (like what happened in 2013). Money market’s, T-Bill’s and an inverse Treasury ETF are being used in client accounts along with some “strategic” bond funds.
  • Very puzzled by the US dollar’s response to tax reform. Very unlike what happened in mid 1980’s with Reagan’s Budget Bill of 1986;

Thanks for reading. Take all opinions and forecasts with a grain of salt.




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