Jobs Report an Unexpected Stinker for home loan rates

Jobs Report an Unexpected Stinker for home loan rates

“Don’t believe the hype.” Unfortunately, the lyrics from Public Enemy’s hit song came true last week when the official Jobs Report for November was released.

Overall, Traders were caught by surprise last Friday when the Jobs Report came in way below estimates. The private sector numbers also disappointed. But let’s look at some important information behind the headline number.

First, on a positive note, last week’s report included upward revisions to the past two months. Those revisions showed that the economy produced 38,000 more jobs than previously reported. What caused these revisions? The headline number of jobs lost or created comes from the Business Survey or CES (Current Employment Statistics) Survey, which surveys about 140,000 businesses and government agencies – and uses the birth/death ratio to help calculate or guesstimate the monthly number. Because there are often inaccuracies with that guesstimate, the real final numbers show up in future monthly revisions.

Second, on a grim note, the Unemployment Rate ticked up to 9.8%, from the prior month’s 9.6%. It’s important to note that the unemployment rate is derived from a survey from the Labor Department called the Household Survey or Current Population Survey (CPS) – and this survey is more accurate than the business survey as the information comes from actual phone calls to 50,000-60,000 households.

So when all is said and done, last week’s Jobs Report begs the following questions going forward:

Was the recent string of economic reports more hype than actual signs that the economy was improving?

Will future reports coincide with last Friday’s weak Jobs Report?

Or was the Jobs Report’s weak reading just a small bump on the road to recovery, with potential future upward revisions tempering November’s numbers like we saw happen with the last two months?

Time will tell, but one thing is for sure: The Fed was watching the Jobs Report closely and will likely use the weak report as evidence to pump the full dose of Quantitative Easing 2 (QE2) into the economy. Remember, Quantitative Easing is the concept of the Fed becoming a buyer of Treasuries and Bonds to try and stimulate the economy. While QE2 may be good for the economy, it is likely to be unfriendly to Bonds and home loan rates, as we saw last week when Bonds and home loan rates ended the week worse than where they began.

Forecast for the week:

Compared to last week’s busy economic report calendar, this week is light on scheduled reports. But between QE2, Treasury auctions, and the uncertainty in Europe, the volatility in our markets is sure to continue… and that’s certainly no hype.

Thursday brings the Initial and Continuing Jobless Claims Report. Last week, Initial Claims were reported above expectations at 436,000. However the 4-week moving average did decline to the lowest reading since August 2, 2008. While this was good news, it was tempered by the weaker-than-expected Jobs Report data last Friday. Remember, we need to see Initial Claims make a sustained movement below 400,000 for the market to feel confident that labor is recovering.

Also, the Treasury will sell $32 Billion in 3-Year Notes on Tuesday, $21 Billion in 10-Years on Wednesday and $13 Billion in 30-Year Bonds on Thursday. It will be interesting to see how these auctions perform in light of the recent spike higher in yields. Ending the week will be the Consumer Sentiment Index on Friday.

Remember: Weak economic news normally causes money to flow out of Stocks and into Bonds, helping Bonds and home loan rates improve, while strong economic news normally has the opposite result.

Give me a call if you want to review your situation, or forward this email to a friend, family member or colleague who might benefit. I’m always happy to talk to your referrals and provide a complimentary consultation.

Subscribe to our daily mortgage market emails.

Have a Question?

Legal Disclaimer
Or give us a call
925-484-5363