Commentary: The number of Americans filing for first-time unemployment benefits fell by 42,000 to 415,000 - a decline largely attributed as payback for last week's weather-driven surge. Mortgage investors noticed the drop but weren't particularly concerned about it. Weekly jobless claims haven't yet fallen to levels that indicate a healthy labor market. Most analysts believe weekly application for first-time jobless benefits will have to fall below 400,000 for a sustained period before the national employment picture will brighten appreciably. Today's claims data will have no impact on tomorrow's much more important January nonfarm payroll statistics because the weekly canvassing of government unemployment offices fell outside of the survey period for the monthly jobs number.
In a separate report the Labor Department said productivity, a measure of hourly output per worker, increased at a stronger-than-expected annualize pace of 2.6% in the fourth-quarter of 2010. The productivity gain was well above most economists' forecasts and bodes well for company profits - while simultaneously strongly suggesting the current anemic pace of improvement in the labor sector will probably continue. The solid growth in productivity indicates companies are extracting more output from their existing workforce. Hours worked in the fourth-quarter increased at a1.8% pace after a 1.4% increase in during the third-quarter of 2010. The component of the report that measures unit costs fell at 0.6% rate after dipping at a 0.1% pace in the July-September period last year. This is certainly not the type of news that suggests "now hiring" signs will be exploding on the American business scene anytime soon.
Last but certainly not lest, the Institute of Supply Management's Service Sector Index, a measure which covers about 90% of all the country's economic activity, hit a new record high for the recovery in January, rising 2.3 points to 59.4%. The key activity and new orders components also hit new highs, pointing to further strengthening in the overall economy.
The stage is now set for tomorrow morning's 8:30 a.m. ET release of the January nonfarm payroll report. As I write most investors anticipate the economy created 145,000 more jobs in January than were lost -- while the national jobless rate is expected to tick up to 9.5% from December's 9.4%. Numbers that match or fall below these projections will tend to be supportive of steady to perhaps fractionally lower mortgage interest rates. In the unlikely case the actual numbers are stronger than currently projected -- look for your investors to push mortgage rates higher.
As I mentioned in this space yesterday, payrolls are harder to judge this time around given the incessant weather disruptions that have blanketed the nation. Raymond Stone, managing director and economists at Stone & McCarthy Research Associates points out that over the past seven years, the initial print on January payrolls has come in consistently below market expectations. In addition, December payrolls have been revised down 23 times over the past 31 years (75% of the time), with the average revision amounting to about 36,000 jobs. The "so what" factor attached to all this statistical mumbo jumbo is that while it is possible Friday's nonfarm payroll data will prove strong enough to push mortgage interest rates rudely higher from current levels - it is not a very probable outcome. With that said, I personally believe it will be a mistake to "float" loans into Friday's 8:30 a.m. ET release of the January jobs data unless the price of the Fannie Mae 4.0% 30-year mortgage-backed security can first muster the momentum to close above 98.500. Be patient and remained disciplined here. There is virtually nothing to be gained by jumping the gun now.
THE MARKET IS ALWAYS RIGHT! . YOU AND I ARE SOME OF THE TIME
