Will Employment Data Effect Rates?
Posted 07-02-2010 at 09:31 AM by VictorBurek
Mortgage rates held steady for the second consecutive day as the markets await this morning’s employment data. At the open of trading Thursday morning, mortgage rates were under some pressure which led lenders to slightly increase costs from the rate sheets we had on Wednesday. As the day progressed, the morning’s losses were regained but only a couple lenders repriced better passing along the improvement. Mortgage rates continued to hold at the most aggressive levels of our lifetime.
The Bureau of Labor Statistics published the official Employment Situation report this morning.
Released on the first Friday of every month, the official Employment Situation report provides an in-depth look into the health of the driving force behind consumer spending: THE JOB MARKET. This report is the single most important economic data released on a monthly basis.
The market pays attention to four specific metrics:
1. Nonfarm Payrolls: totals the number of jobs that were added or cut from employer payrolls in the prior month. Consensus Forecast: -100,000 jobs vs. +431,000 last month
2. Unemployment Rate: the percentage of working-age, able-Americans who are out of work. Consensus Forecast: 9.8% vs. 9.7% last month
3. Average Hourly Earnings: how much the average worker earns per hour of work. Consensus Forecast: +0.1% vs. 0.3% last month
4. Average Work Week: average amount of hours worked by an employee per week. Consensus Forecast: 34.2 hours vs. 34.2 last month
Here are the official results:
1. Nonfarm Payrolls - Payrolls fell by 125,000. Worse than expected. May’s number was revised better to show an additional 2,000 jobs created. Private payrolls added 83,000 jobs(111,000 was expected) while the government cut 225,000 temporary census jobs.
2. Unemployment Rate - 9.5%, the lowest print since July 2009. Better than expected. The unemployment rate improved largely because of a decline in the civilian labor force (the pool of willing and able workers) which fell 652,000. People drop out of the labor force because they have been unable to find a job. These "discouraged workers" are not counted in the official unemployment rate. However, the lower rate of unemployment should help with consumer confidence.
3. Average Hourly Earnings - down 0.1%. Worse than expected. This is bad news for consumers. Those who have jobs are making less per hour which gives them less disposable income to spend into the economy.
4. Average Work Week - 34.1 hours. Worse than expected. This is also bad news for consumers with jobs. An employee who's working less hours at a lower pay rate will bring home a smaller paycheck to spend on goods and services...OR pay their mortgage!
After the news hit, the markets have swung in both directions. Initial reaction in bonds was a move lower in price(higher rates) but have since settled in near closing levels from yesterday.
The Department of Commerce released the monthly Factory Orders report at 10am. This data represents the value of new orders placed for both durable and non-durable goods. Durable goods are products that have a life expectancy of at least three years such as autos, computers, machinery. Non-durable goods are products that can only be used one time or a product with less than a three year life expectancy. New orders is a forward looking indicating of industrial output. If orders are increasing, it indicates manufactures will be busier in the months ahead as they ramp up production to meet the demand. Busier factories can lead to additional hiring which is good for the overall economy and the equities market. To remind readers, as a general rule positive economic data benefits the stock market while negative economic data benefits the bond market and low mortgage rates.
The report showed factory orders were much lower than expected. New orders for manufactured goods fell 1.4% in May. Economists had expected only a drop of 0.5%. Since factory orders declined, factories should be less busy in the months ahead which is not good news for those looking for a job.
Reports from fellow mortgage professionals indicate lender rate sheets to be slightly worse than yesterday. Quite often ahead of a holiday weekend, lenders worsen rate sheets in a way to discourage locks. Many things can happen over the long weekend which effect the markets Tuesday morning. The par 30 year conventional rate mortgage remains in the 4.375% to 4.625% range for well qualified consumers. To secure a par interest rate on a conventional mortgage you must have a FICO credit score of 740 or higher, a loan to value at 80% or less and pay all closing costs including an estimated one point loan origination/discount/broker fee. If you are seeking a 15 year term, you should expect a par rate in the 3.875% to 4.125% range with similar costs but lower FICO score requirements.
With rates holding very close to the best levels ever, I continue to favor locking.
All markets are closed on Monday in celebration of July 4th. I will be back to you on Tuesday with a look at what will move the markets next week. Have a safe holiday weekend.
The Bureau of Labor Statistics published the official Employment Situation report this morning.
Released on the first Friday of every month, the official Employment Situation report provides an in-depth look into the health of the driving force behind consumer spending: THE JOB MARKET. This report is the single most important economic data released on a monthly basis.
The market pays attention to four specific metrics:
1. Nonfarm Payrolls: totals the number of jobs that were added or cut from employer payrolls in the prior month. Consensus Forecast: -100,000 jobs vs. +431,000 last month
2. Unemployment Rate: the percentage of working-age, able-Americans who are out of work. Consensus Forecast: 9.8% vs. 9.7% last month
3. Average Hourly Earnings: how much the average worker earns per hour of work. Consensus Forecast: +0.1% vs. 0.3% last month
4. Average Work Week: average amount of hours worked by an employee per week. Consensus Forecast: 34.2 hours vs. 34.2 last month
Here are the official results:
1. Nonfarm Payrolls - Payrolls fell by 125,000. Worse than expected. May’s number was revised better to show an additional 2,000 jobs created. Private payrolls added 83,000 jobs(111,000 was expected) while the government cut 225,000 temporary census jobs.
2. Unemployment Rate - 9.5%, the lowest print since July 2009. Better than expected. The unemployment rate improved largely because of a decline in the civilian labor force (the pool of willing and able workers) which fell 652,000. People drop out of the labor force because they have been unable to find a job. These "discouraged workers" are not counted in the official unemployment rate. However, the lower rate of unemployment should help with consumer confidence.
3. Average Hourly Earnings - down 0.1%. Worse than expected. This is bad news for consumers. Those who have jobs are making less per hour which gives them less disposable income to spend into the economy.
4. Average Work Week - 34.1 hours. Worse than expected. This is also bad news for consumers with jobs. An employee who's working less hours at a lower pay rate will bring home a smaller paycheck to spend on goods and services...OR pay their mortgage!
After the news hit, the markets have swung in both directions. Initial reaction in bonds was a move lower in price(higher rates) but have since settled in near closing levels from yesterday.
The Department of Commerce released the monthly Factory Orders report at 10am. This data represents the value of new orders placed for both durable and non-durable goods. Durable goods are products that have a life expectancy of at least three years such as autos, computers, machinery. Non-durable goods are products that can only be used one time or a product with less than a three year life expectancy. New orders is a forward looking indicating of industrial output. If orders are increasing, it indicates manufactures will be busier in the months ahead as they ramp up production to meet the demand. Busier factories can lead to additional hiring which is good for the overall economy and the equities market. To remind readers, as a general rule positive economic data benefits the stock market while negative economic data benefits the bond market and low mortgage rates.
The report showed factory orders were much lower than expected. New orders for manufactured goods fell 1.4% in May. Economists had expected only a drop of 0.5%. Since factory orders declined, factories should be less busy in the months ahead which is not good news for those looking for a job.
Reports from fellow mortgage professionals indicate lender rate sheets to be slightly worse than yesterday. Quite often ahead of a holiday weekend, lenders worsen rate sheets in a way to discourage locks. Many things can happen over the long weekend which effect the markets Tuesday morning. The par 30 year conventional rate mortgage remains in the 4.375% to 4.625% range for well qualified consumers. To secure a par interest rate on a conventional mortgage you must have a FICO credit score of 740 or higher, a loan to value at 80% or less and pay all closing costs including an estimated one point loan origination/discount/broker fee. If you are seeking a 15 year term, you should expect a par rate in the 3.875% to 4.125% range with similar costs but lower FICO score requirements.
With rates holding very close to the best levels ever, I continue to favor locking.
All markets are closed on Monday in celebration of July 4th. I will be back to you on Tuesday with a look at what will move the markets next week. Have a safe holiday weekend.
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