Daily Commentary by Larry Baer: Mortgage investors largely shrugged off stronger-than-expected labor market news earlier this morning. According to private payroll firm ADP non-government employment grew by a surprising 325,000 jobs in December - well above the 204,000 private positions created in November. Most mortgage investors appear to strongly believe a significant part of the big ADP December job gain is almost certainly related to seasonal hiring and therefore subject to substantial downward revisions in coming month's
In a separate report the Labor Department said the number of Americans standing in line to file first-time government jobless benefit claims declined by 15,000 during the week-ended December 31st. From a mortgage investor's mindset it is not easing jobless claims -- but the lack of robust hiring -- that remains the missing puzzle piece for improved economic growth. As long as non-seasonal job growth remains anemic mortgage interest rates will almost certainly continue to hover within shouting distance of current levels.
Last but not lest in terms of this morning's battery of economic data, the private Institute of Supply Management released their December Service Sector Index figures at 10:00 a.m. ET. The index, designed to account for activity in non-manufacturing industries, a segment with accounts for almost 90 percent of the economy, rose to 52.6% last month from 52.0% in November. The December gain was the second lowest since January 2010 and was well below most economists' forecast calling for a gain of 53.0% or higher. Eleven of the eighteen industries which compose the Service Sector Index reported growth, while seven industries, including health care and real estate, reported contraction.
The employment component of index rose from 48.9% in November to 49.4% in December. This component of the index has been below its expansionary threshold of 50.0% in three of the past four months. This weakness does not fit well with the ADP and initial weekly claims reports that are painting a relatively bright labor market picture. In light of this data I suspect most investors will not make significant adjustments to their current forecast calling for tomorrow morning's December Nonfarm Payroll report to show 150,000 net new jobs were created during the month while the national jobless rate inched up to 8.7% from the previous month's 8.6% mark. If this assessment proves accurate - look for mortgage interest rates to remain little changed.
THE MARKET IS ALWAYS RIGHT! . YOU AND I ARE SOME OF THE TIME
