Commentary: During the month of April private sector employers shrugged off sky-high energy prices to add jobs at the fastest pace in five years - yet the jobless rate rose to 9.0% from the 8.8% level the prior month. Payroll figures for the previous two months were revised higher to show 46,000 more jobs were created than were previously reported. Details contained in the April employment report were generally upbeat with the exception of government employment, which contracted for a sixth straight month in April, shedding 24,000 jobs.
Judging by trading action in the mortgage market this morning -- it appears investors are completely discounting last month's better-than- expected headline news with regard to job creation - and are instead expecting forthcoming labor market data to tell a much more mortgage market friendly story.
Weekly applications for state unemployment benefits have jumped by almost 100,000 in the past eight weeks and overall participation in the labor market remains as low as it was in the mid-1980's. The slowdown in the labor sector is currently assumed to be a condition of a slowdown in overall economic growth. The good news here is that mortgage interest rates will likely move sideways to perhaps fractionally lower until signs of a sustained accelerating in job creation develop - the bad news is that fewer and fewer perspective borrowers will be able to avail themselves of these handsome rates since current employment status remains a major underwriting standard.
Looking ahead to next week -- Uncle Sam will be in the credit markets from Tuesday through Thursday looking to borrow $77 billion in the form of 3- and 10-year notes together with a small segment ($16 billion) of 30-year bonds. Not much in the way of economic news is on the docket until Thursday when investors will react to the inflation data contained in the April Producer Price Index and we will get a chance to see how big a hunk, if any, higher energy prices took out of the April Retail Sales numbers. The second part of the inflation story will be told on Friday with the release of the April Consumer Price Index. As long as the core rates (a value that excludes the more volatile food and energy price components) of both the Producer and Consumer Price Indexes remain at 0.2% or below these two data series will likely have little influence on the level of mortgage interest rates. In the off chance one or both of the core indexes of these two primary measures of inflation post a reading of 0.3% or more -- look for mortgage rates to make a noticeable move to higher levels.
THE MARKET IS ALWAYS RIGHT! . YOU AND I ARE SOME OF THE TIME
