Daily Commentary by Larry Baer: The Labor Department reported this morning the number of Americans standing in line to file first-time claims for government unemployment benefits dropped 14,000 during the week ending March 10th.
Initial weekly jobless claims have been tucked in a tight range since February, a hopeful sign for the labor market, which has recorded three straight months of employment gains above 200,000. While those numbers are certainly moving in the right direction it is worth noting that a little more obscure government report - the January Job Openings and Labor Turnover Survey - indicates that much of the improvement in net job gains are attributable to fewer layoffs rather than stronger labor demand by businesses. In other words - a rapid acceleration in labor demand is not yet in the cards - which by extension strongly suggests that a steady upward move for mortgage interest rates is not yet a threat either.
In a second report, the Labor Department said the February Producer Price Index, a measure of price paid for raw materials at farms, factories and refineries rose 0.4% -- slightly below the 0.5% gain expected by most economists but well above January's reading of 0.1%. The core rate of inflation at the producer level, a value excluding the more volatile food and energy costs, rose a modest 0.2% after posting a 0.4% gain in January. It was the third consecutive month of increases in core producer price index. Investors gave this data a passing glance this morning but they will be watching more closely to see if this trend continues. Another month or two of increased costs at the producer level, should it occur, will almost certainly add upward pressure on mortgage interest rates.
This week's swoon in the mortgage market has been largely created by investors' reaction to Tuesday's post-meeting statement issued at the conclusion of the Federal Open Market Committee meeting. The members of the committee said they expect "moderate" economic growth over coming quarters along with a gradual decline in the unemployment rate. At its previous policy meeting in January, the Fed has said it expected "modest" growth. While the Fed did acknowledge some improvement in the labor market, they left the door open to the possibility of launching another monetary stimulus program - to be known as "QE3" - and said they continue to expect to hold their benchmark short-term interest rates near zero through late 2014.
In my judgment mortgage investors have gotten ahead of themselves with the heavy round of selling of the past two days. Most of the selling is probably due to investors adjusting strategies as the prospects of additional mortgage-backed security purchases by the Fed as part of a "QE3" stimulus plan sometime later this year dims a bit.
THE MARKET IS ALWAYS RIGHT! . YOU AND I ARE SOME OF THE TIME
