Daily Commentary by Larry Baer: A
swing and a miss.
Most economists had projected the Labor
Department's nonfarm payroll report would show the economy created 175,000 new
jobs last month. According to Labor Department
figures released earlier this morning -- the economy actually created a very
modest 115,000 new jobs in April. It was
the third straight month in which hiring slowed, keeping fears alive that the
economy is losing momentum.
The national jobless rate ticked lower to
8.1% last month from the March level of 8.2% -- a three-year low. No doubt the talking heads on news networks
will be trumpeting the decline as "good news" - but the truth of the
matter is more dismal. The jobless rate
declined because some 342,000 people threw up their hands and dropped out of
the workforce. Granted, somewhere in the
neighborhood of 10,000 baby-boomers are retiring each month - but the remaining
332,000 folks who simply quit looking for work is an unequivocal sign of
weakness in the labor sector. Just so
you can put the jobless rate in historical perspective - it is currently
running 2 percentage points higher than its 50 year average. I don't know about you - but that doesn't
sound like "good news" to me.
There was a bright spot in today's Labor
Department report - it seems the department underreported growth in the labor
sector for February and March by a combined 53,000 jobs. Taking this rather sizable revision into
account, the three-month moving average of job gains improves to 176,000. There is no denying labor sector is slowly
improving -- but the economy needs to create about 250,000 jobs each month over
a year or two to allow all those who have lost their jobs during the Great
Recession to return to work and to absorb new entrants into the labor force -
so significant additional job growth is still desperately needed.
Boiling all this statistical mumbo-jumbo down
to its bare-essence the story from the labor market is one of slow and very
uneven improvement. The slow pace of
growth is not enough to spur the Fed to launch another round of economic
stimulus in the form of QE3 (an action that would likely result in slightly
lower mortgage rates). That is the bad
news -- the good news is job growth is not yet robust enough to create much in
the way of noticeable upward pressure on mortgage interest rates. In the near-term demand for purchase money
mortgages will probably remain modest at best while refinance requests will
almost surely continue to compose the lion's share of our industry's pending
loan pipelines.
The middle three days of the coming week will
be dominated by the Treasury Department's $72 billion debt auction. On Tuesday Uncle Sam will sell $32 billion of
3-year notes followed by Wednesday's $24 billion sale of 10-year notes and will
conclude on Thursday with the sale of $16 billion worth of 30-year bonds. Political rumblings and bubbling sovereign
debt issues in much of Europe will likely
provide enough "flight-to-quality" demand for this week's U.S. dollar
denominated debt offerings to effectively minimize any potential upward
pressure on mortgage rates these three events might otherwise create.
The economic calendar for the upcoming week
will be pretty light and will feature the weekly initial jobless claims figures
on Thursday and the April Producer Price Index on Friday. Initial claims are expected to edge higher by
roughly 5,000 for the week ended May 5th. Friday's inflation report from the country's
farms and factories is projected to be benign.
If the consensus estimate proves accurate on both accounts, these
reports will tend to be supportive of steady to perhaps fractionally lower
mortgage rates.
THE
MARKET IS ALWAYS RIGHT! . YOU AND I ARE SOME OF THE TIME
