Daily Commentary by Larry Baer: U.S. nonfarm
productivity fell more than expected in the first-quarter as companies asked
existing employees to put in more hours to generate a modest boost in
output. Economists are divided about
what the first-quarter's 0.9% drop in productivity will mean for the economy.
On the one hand, the decline in productivity
may be an indication employers are reaching the point of diminishing returns
with respect to the output their existing employees can generate. If so, a notable improvement in hiring will
follow even a slight increase in new demand.
On the other hand, the recent decline in productivity could be a sign
that hiring may continue to decline as a function of slumping demand. As I write it appears mortgage investors are
currently viewing this morning's data as an indication a notable uptick in
hiring is just around the corner - a perspective that is putting some
noticeable upward pressure on mortgage interest rates.
As they do every Wednesday, the Mortgage
Bankers of America have released their Mortgage Application survey figures for
the week ended June 1st. The
refinance index gained 2.0% from the previous week but the purchase index
continued its recent losing streak and fell 1.8%. The overall mortgage application index posted
a gain of 1.3% for the week. Refinance
applications accounted for 77.6% of all applications and 76.5% of the
prospective loan volume. The contract
rate for 30-year fixed-rate conforming mortgages finished at 3.87%, down 4 basis-points
from its week ago level, down 14 basis-points from four weeks ago, and down 73
basis-points from its year-ago mark.
Mortgage investors will be tuning in to the
congressional testimony of Fed Chairman Bernanke tomorrow at 10:00 a.m.
ET. Market participants will be
listening intently to the chairman's views on the intensity of the downside
risk to the U.S.
economic growth and to get a sense of whether the Fed might be planning on
providing additional stimulus in an attempt to spur stronger economic growth
over the coming months.
In my opinion Mr. Bernanke and most of his
fellow central bankers probably see the stampede of global investors piling
into the safety of U.S Treasury debt obligations and agency eligible
mortgage-backed securities as a god-send.
This massive flow of capital into U.S. dollar denominated credit
instruments is sending our domestic interest rates to historical lows which is
in-turn providing the Fed with an enormous amount of "breathing room"
to simply stand pat and see how things play out in the economy over the next
couple of months.
If my assessment proves accurate, look for
mortgage interest rates to move sideways to fractionally higher as credit
market participants register their disappointment with the Federal Open Market
Committee's hesitancy to refill the punchbowl and keep the party to
progressively lower mortgage interest rates going forever.
As I mentioned in this space yesterday -- my
timing algorithms are suggesting mortgage interest rates will likely begin a
more sustained move to higher levels sometime between June 21st and
the end of July. For the time being
investors will be reluctant to begin aggressively reducing their safe-haven
investments in dollar denominated assets like U.S. Treasury debt obligations
and agency eligible mortgage-backed securities before results of the Greek
elections on June 17th are known and the Fed has concluded its Open
Market Committee meeting on June 20th. Until then, expect mortgage interest rates
here at home to chop nervously back and worth in a relatively tight range.
THE
MARKET IS ALWAYS RIGHT! . YOU AND I ARE SOME OF THE TIME
