Daily Commentary by Larry Baer: The near-term prospects for yet lower interest rates were staggered this morning by the punch of a much stronger-than-expected January nonfarm payroll report and a very solid Institute of Supply Management Service Sector report.
The economy created jobs at the fastest pace in nine months in January, and the unemployment rate dropped to an almost 3 year low. The Labor Department reported this morning that nonfarm payrolls jumped 243,000 - well above the most optimistic forecasts from economists. The overall payroll gain was the largest since April, far out-pacing the consensus estimate from economists calling for a rise of only 150,000. Equally impressive, the national jobless rate dropped to 8.3% from December's 8.5% mark. The jobless rate is now at its lowest level since February 2009 and has dropped 0.8 percentage points since August.
The overall strength of the report was enhanced as the data wonks at the Labor Department reported there were 60,000 more jobs created in November and December than they had previously counted.
While it is impossible to completely discount the strength in today's numbers from the labor sector -- some mortgage investors are taking the data with a "grain-of-salt" - because the January report may have been distorted due to annual benchmark changes made by the Labor Department, which among other things, revised population levels and other key data.
In a separate report, the private Institute of Supply Management said its Service Sector Index unexpectedly accelerated in January to its highest level in nearly a year. The improvement in the details for the report is encouraging for economic growth prospects this quarter; the new orders component of this index jumped 4.8% while the employment component of the index rocketed 7.6 points higher.
Looking ahead to next week, Uncle Sam will be in the credit markets from Tuesday through Thursday looking to borrow $79 billion in the form of 3- and 10-year notes together with a 30-year bond offering. If Euro-zone financial authorities have not cobbled out a financial rescue package for Greece by the time the 3-year notes go on the auction block at 1:00 p.m. ET on Tuesday, demand for this three-part offering will likely be good - and the three auctions will probably exert little, if any, noticeable influence on the trend trajectory of mortgage interest rates. On the other hand, if a firm and viable agreement to save Greece from a major financial meltdown is reached on Monday as currently expected - the "flight-to-quality" of European capital into the relative safe-haven of US dollar denominated assets will likely begin to tapper off - resulting in lower prices for these three debt offerings. If this condition were to develop - it is almost sure to put upward pressure on mortgage interest rates before the week is over. I'll keep you posted.
THE MARKET IS ALWAYS RIGHT! . YOU AND I ARE SOME OF THE TIME
