Daily Commentary by Larry Baer: The number of Americans filing first-time claims
for government jobless benefits fell for a third straight week. The Labor
Department reported claims for jobless benefits dropped 10,000 to a seasonally
adjusted 322,000 during the week ended March 9th. The
four-week moving average for new claims, a better measure of labor market
trends, fell 2,750 to its lowest level in 5-years - a further indication labor
market conditions are improving.
It is worth noting
for the past three years the job market has gotten off to a strong start early
in the year -- only to peter out in the summertime. It is unlikely this
year will be any different, though the slowdown will not likely be as sharp as
previous years since the economy is fundamentally on a firmer footing.
The summer slowdown
this time around will probably come as the result of cuts under sequestration,
which is estimated to result in the loss of 500,000 private sector jobs.
In addition, rolling Federal civilian furloughs slated to begin in April and
run through September will result in a 20% pay cut for these workers. The
collective income loss is almost certain to constrain economic growth through
the summer and perhaps through the balance of the year. The "so
what" factor here is significant. Against a backdrop of declining
employment and overall slow economic growth it is highly unlikely the Fed will
choose to throttle back their $85 billion per month buying spree of Treasury
debt obligations and agency eligible mortgage-backed securities - leaving a key
support for the prospect of steady to perhaps fractionally lower mortgage
interest rates firmly in place.
In a separate report
released earlier this morning the Commerce Department said a spike in gasoline
prices pushed the February Producer Price Index up by 0.7%. However,
underlying inflation pressures remained relatively benign, with wholesale
prices excluding the volatile food and energy components rising a modest
0.2%. Mortgage investors glanced at the data - and yawned.
Uncle Sam will be in
the credit market today looking to sell $13 billion of 30-year bonds as he
wraps-up this week's three-day, three-part debt sale. The auction will
conclude at 1:00 p.m. ET. I'll post results on my website as soon as
possible once the final gavel falls.
Keep your fingers
crossed fixed-income investors make a strong showing at today's debt
sale. A weak 30-year bond auction will almost certainly put some upward
pressure on mortgage interest rates. It is a close call - but with the
yield on this offering at roughly twelve month highs -- the risk of a soft debt
sale this time around is not as threatening as it has been in prior
periods. If my assessment proves accurate, it would not be
surprising to see a little "relief rally" develop in the Treasury
debt and agency eligible mortgage-backed securities markets following today's
auction.
THE
MARKET IS ALWAYS RIGHT! . YOU AND I ARE SOME OF THE TIME
