Jobs Day, How Will it Impact Rates
Posted 02-04-2011 at 08:46 AM by VictorBurek
Consumer borrowing costs rose yesterday as the market prepares for today’s highly important employment data. Mortgage rates opened worse and the pressure continued through close. Most lenders did reissue rate sheets late in the afternoon increasing consumer borrowing costs further.
This morning the Bureau of Labor Statistics released the most important economic report we receive monthly…the Employment Situation Report for January. 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: +140,000 vs. +103,000 in December (The private sector consensus for +155,000 vs 113,000 last month)
2. Unemployment Rate: the percentage of working-age, mentally able-Americans who are jobless. Consensus Forecast: 9.5% of the labor force vs. 9.4% last month
3. Average Hourly Earnings: the average amount of earnings per hour of labor performed. If hourly earnings increase, that implies consumers will take home bigger paychecks giving them more money to spend which benefits stocks over bonds. Consensus Forecast: +0.2% vs. +0.1% last month.
4. Average Work Week: average amount of hours worked by an employee per week. If hours worked increases, that implies consumers will take home bigger paychecks which is good news for consumer spending and stocks but pressures rates higher. Consensus Forecast: 34.3 hours vs. 34.3 last month.
Here are the results:
1. Nonfarm Payrolls: +36,000 in January with the private sector adding +50,000 jobs. December’s data was revised from +103,000 to +121,000 and November’s was revised from +71,00 to +93,000. Huge miss; however, it was still the 13th straight month of private sector payroll growth. WORSE THAN EXPECTED
2. Unemployment Rate: fell to 9.0% BETTER THAN EXPECTED The decline in the unemployment rate is being attributed to Americans falling out of the work force. To the average American, the decline in the headline Unemployment rate is psychologically positive.
3. Average Hourly Earnings: +.04% BETTER THAN EXPECTED
4. Average Work Week: unchanged at 34.2 hours WORSE THAN EXPECTED
Wow, what a big miss. So you would think the market would take this report as a negative, but the market only wants to go in one direction… stocks higher, bonds lower. Immediately following the release the benchmark 10 year Treasury note rose to 3.62 and mortgage backed securities continued to decline. Weather is being blamed for the poor report. From the release, 886,000 people were said to be unable to work due to the weather during the survey data week. The talking heads on TV are already talking about next month’s report showing a huge jump in jobs as the weather effects ease. So the message taken away by investors is the jobs data is distorted but the underlying trend of an improving jobs sector continues.
Lender rate sheets are worse again this morning. The par 30 year conventional rate mortgage remains in the 4.875% to 5.125% range, but costs have increased by .25 in discount from yesterday. The par 15 year conventional rate mortgage is in the 4.25% to 4.50% range for well qualified consumers. As always, to secure a par interest rate you must pay all closing costs associated with your loan including an estimated one point loan origination/discount/broker fee.
I favor floating all loans. I feel as market participants digest the data they will begin to realize that job growth is not strong and our recovery is far from talking strong hold. Additionally, the stock market is due for a correction which should force money back into the bond market. Finally, the lower MBS prices of this morning are already reflected on rate sheets, so no need to lock unless MBS prices continue to fall but they seemed to have found a bottom.
Keep in mind, nothing has been solved in Egypt and political unrest is starting to spread to other countries.
This morning the Bureau of Labor Statistics released the most important economic report we receive monthly…the Employment Situation Report for January. 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: +140,000 vs. +103,000 in December (The private sector consensus for +155,000 vs 113,000 last month)
2. Unemployment Rate: the percentage of working-age, mentally able-Americans who are jobless. Consensus Forecast: 9.5% of the labor force vs. 9.4% last month
3. Average Hourly Earnings: the average amount of earnings per hour of labor performed. If hourly earnings increase, that implies consumers will take home bigger paychecks giving them more money to spend which benefits stocks over bonds. Consensus Forecast: +0.2% vs. +0.1% last month.
4. Average Work Week: average amount of hours worked by an employee per week. If hours worked increases, that implies consumers will take home bigger paychecks which is good news for consumer spending and stocks but pressures rates higher. Consensus Forecast: 34.3 hours vs. 34.3 last month.
Here are the results:
1. Nonfarm Payrolls: +36,000 in January with the private sector adding +50,000 jobs. December’s data was revised from +103,000 to +121,000 and November’s was revised from +71,00 to +93,000. Huge miss; however, it was still the 13th straight month of private sector payroll growth. WORSE THAN EXPECTED
2. Unemployment Rate: fell to 9.0% BETTER THAN EXPECTED The decline in the unemployment rate is being attributed to Americans falling out of the work force. To the average American, the decline in the headline Unemployment rate is psychologically positive.
3. Average Hourly Earnings: +.04% BETTER THAN EXPECTED
4. Average Work Week: unchanged at 34.2 hours WORSE THAN EXPECTED
Wow, what a big miss. So you would think the market would take this report as a negative, but the market only wants to go in one direction… stocks higher, bonds lower. Immediately following the release the benchmark 10 year Treasury note rose to 3.62 and mortgage backed securities continued to decline. Weather is being blamed for the poor report. From the release, 886,000 people were said to be unable to work due to the weather during the survey data week. The talking heads on TV are already talking about next month’s report showing a huge jump in jobs as the weather effects ease. So the message taken away by investors is the jobs data is distorted but the underlying trend of an improving jobs sector continues.
Lender rate sheets are worse again this morning. The par 30 year conventional rate mortgage remains in the 4.875% to 5.125% range, but costs have increased by .25 in discount from yesterday. The par 15 year conventional rate mortgage is in the 4.25% to 4.50% range for well qualified consumers. As always, to secure a par interest rate you must pay all closing costs associated with your loan including an estimated one point loan origination/discount/broker fee.
I favor floating all loans. I feel as market participants digest the data they will begin to realize that job growth is not strong and our recovery is far from talking strong hold. Additionally, the stock market is due for a correction which should force money back into the bond market. Finally, the lower MBS prices of this morning are already reflected on rate sheets, so no need to lock unless MBS prices continue to fall but they seemed to have found a bottom.
Keep in mind, nothing has been solved in Egypt and political unrest is starting to spread to other countries.
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