Daily Commentary by Larry Baer: The
private Institute
of Supply Management
reported earlier this morning that its Service Sector Index fell from 56.0 in
March to 53.5 in April. This is the
second consecutive monthly decline of this measure of activity in the largest
sector of the economy and leaves the index at its lowest level since December
2011. Most components of the report were
noticeably weaker than in March.
Particularly noteworthy is the fact the employment component of this
data series fell to 54.2 from 56.7 last month.
This tidbit of info makes it much less likely tomorrow's anxiously
anticipated headline April nonfarm payroll figure will exceed current forecasts
calling for net new job creation in the immediate neighborhood of 175,000. In my opinion -- if mortgage interest rates
are going to have any chance to creep yet lower in the short-term -- it is
imperative April nonfarm payrolls remain below 175,000 and the national jobless
rate does not drop below the current reading of 8.2%.
In a separate report the Labor Department
released figures showing the number of Americans standing in line to file
first-time jobless benefit claims dropped by 27,000 during the week ended April
28th. It is important to
note this big drop in jobless claims occurred after the Labor Department had
closed their survey period for their more important April Nonfarm Payroll
report. Today's report values will not
be reflected in tomorrow's data. This
morning's report makes it far more likely the sharp upward move in the jobless
claims numbers over the past three weeks was caused by the timing of the Easter
holiday rather than a notable deterioration in labor market conditions.
For the balance of the day look for mortgage
investors to shift into "defensive mode" (a condition that will sharply
limit any further improvement in rates or price) as they await the release of
April's employment figures at 8:30 a.m. ET tomorrow morning. Market participants are currently projecting
the economy created 175,000 net new jobs in April - a nice improvement from the
120,000 gain registered in March - but still well below the 250,000+ pace
necessary to just keep up with the number of new entrants into the
workforce. If the actual number matches
or closely approximates the consensus estimate -- mortgage interest rates will
likely remain fairly steady at current levels.
In the off-chance the actual headline number exceeds 200,000 -- look for
surprised mortgage investors to react by pushing rates aggressively higher.
THE
MARKET IS ALWAYS RIGHT! . YOU AND I ARE SOME OF THE TIME
