Weekly Mortgage Market Report by Bob Joyce of Reliant Mortgage Company 05/11/2011
Reliant Mortgage Company, LLC
Phone: (617) 365-9432
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(Massachusetts) Last Week in Review
"LIFE IS A MIXED BLESSING, WHICH WE VAINLY TRY TO UNMIX" - author and journalist Mignon McLaughlin. The labor market and the economy saw their own mixed blessings last week, when three different employment reports were released. Unlike Mignon McLaughlin’s quote above about life, these mixed job reports can actually be untangled. So let’s break down what we learned about employment last week...and, just as importantly, what’s going on with home loan rates.
After two disappointing employment reports earlier last week - in the form of the ADP National Employment Report and the Initial Jobless Claims Report - the labor market finally received some good news on Friday when the Labor Department released their official Jobs Report that showed 244,000 jobs were created in April. That was far above all expectations... and it was the biggest private job increase since 2006!
But where did this number come from... and is it accurate?
This headline number comes from the Current Population Survey, which uses the birth/death model to guesstimate the amount of jobs lost or gained in different industries - based on how many businesses were "born" or "died." And it isn't until we get revisions to the previous month's reports that we get a more accurate and final number.
Furthermore, history has shown that the birth/death model used to estimate is lagging - and at the start of an improving labor market, like we are seeing, the future revisions will likely show more jobs created than previously reported. This dynamic was evident in this month's Jobs Report, as revisions to March showed that an additional 46,000 jobs were created.
Despite the better-than-expected number of jobs created, the Unemployment Rate ticked up to 9% from 8.8%. The data for the Unemployment Rate comes from an entirely different survey - which is called the Household Survey - and is a bit contradictory to the headline news. This shows that the jobs being created simply aren't enough to have yet made a significant dent in the number of jobless Americans.
Also in the Jobs Report, Average Hourly Earnings were reported up by 0.1% to $22.95 per hour. Hourly earnings have increased by 1.9% year over year, just not enough to create "wage-based inflation," which is where employers have to pump up the prices of their goods and services to cover increased wages. So this was somewhat Bond-friendly news.
Although the Jobs Report was mixed, the overall positive tone does validate that the labor market is gradually improving. As the labor market improves, so will the economy and housing - and with that, interest rates will gradually rise as well. In the short run, the recent rise in Bonds is encouraging. However, after such a strong run higher, it would not be surprising to see more downside follow through in Bonds - which could mean higher home loan rates. The good news is that home loan rates recently reached some of the best levels so far in 2011 - and rumors on Friday that Greece may leave the European Union helped Bonds, as traders sought a safe haven.
That means a window has opened up... but there’s one important point you should understand.
It’s important to note that the last time rates hit this level, they jumped significantly higher from here. What’s more, signs of inflation are beginning to creep into our economy, which never bodes well for home loan rates. And if the rumors of Greece leaving the European Union turn out to be untrue (as Greece has stated), the safe haven bounce we saw last Friday could quickly be erased. That’s why it’s important to take action now.
It doesn’t cost anything to check out your situation, and the choice of moving forward or not will be up to you. Don’t miss this window of opportunity to save significantly on your monthly budget. Call or email today to take a look.
Forecast for the Week
This week starts out a little slow, but don’t let that fool you:
• Heavy amounts of long-term debt will be issued this week in Treasury Auctions. Those auctions will equal $72 Billion with $24 Billion in 10-year Notes and $16 Billion in 30-year Bonds. With rates having moved to the best levels of 2011, we may see tepid buying interest for securities at these rates.
• Inflation reports will be in the news again this week, with the Producer Price Index (PPI) on Thursday and the Consumer Price Index (CPI) on Friday. Last month, these reports indicated that inflation is on the rise, but it remains somewhat tame for the moment in terms of what consumers are experiencing. With so much concern over the possibility of future inflation, you can bet the markets will be watching these reports closely - as will I.
• Retail sales will also be released on Thursday. This is the most timely indicator of broad consumer spending patterns.
• Thursday we’ll also see the weekly Initial and Continuing Jobless Claims Report. Last week, Initial Jobless Claims came in at 474,000 which, unfortunately, was well above the 400,000 that was expected, and also the highest level in 9 months.
• The Consumer Sentiment Index is due out on Friday. This index is important because the level of consumer sentiment is directly related to the strength of consumer spending, which accounts for two-thirds of the economy
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.