Mortgage Rates React to Employment Data

Mortgage rates held steady yesterday as the markets went into pause mode awaiting today’s crucial data on jobs. The lack of price volatility with mortgage backed securities allowed lenders to keep rate sheets unchanged on the day, but they were the worst rate sheets of the week.

This morning the Bureau of Labor Statistics released the most important economic report we receive monthly…the Employment Situation Report for December. This release provides four headline measures on the health of the jobs sector:

1. Nonfarm Payrolls: totals the number of jobs that were added to or cut from employer payrolls in the prior month. This report counts both the private sector and government jobs. Consensus Forecast: +160,000 vs. +39,000 in November (The private sector consensus for +180,000 vs 50,000 last month)
2. Unemployment Rate: the percentage of working-age, mentally able-Americans who are jobless. Consensus Forecast: 9.7% of the labor force vs. 9.8% last month
3. Average Hourly Earnings: the average amount of earnings per hour of labor performed. Consensus Forecast: +0.2% vs. +0.0% last month.
4. Average Work Week: average amount of hours worked by an employee per week. Consensus Forecast: 34.3 hours vs. 34.3 last month.

Here are the results:

1. Nonfarm Payrolls: +103,000 in December with the private sector adding +113,000 jobs. November’s data was revised from +39,000 to +71,000 and October’s was revised from +172,00 to +210,000. Even when you add the revisions to this month’s total, it was still miss. However, it was still the 12th straight month of private sector payroll growth. WORSE THAN EXPECTED
2. Unemployment Rate: fell to 9.4% BETTER THAN EXPECTED The decline in the unemployment rate is being attributed to Americans falling out of the work force. Market participants put more weight on jobs created but to the average person this is psychologically positive.
3. Average Hourly Earnings: +.01% WORSE THAN EXPECTED
4. Average Work Week: unchanged at 34.3 hours

If you floated through this report, you were rewarded this morning. Initial reaction to the data has been positive for the fixed income sector. MBS as of 9am have recaptured well over half the losses they suffered following the much better than expected ADP payrolls survey on Wednesday.

Lender rate sheets are improved from yesterday. The par 30 year conventional rate mortgage remains in the 4.75% to 5.00% range with a few lenders offering 4.625%. 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. You can elect to pay less in costs but you will have to accept a higher interest rate.

I definitely feel floating over the weekend is the way to go. We aren’t seeing a huge rally but as today’s data gets digested, I feel we will see further price gains which leads to lower consumer borrowing costs.
Have a great weekend.