Austin Mortgage Blog

Posts Tagged ‘unemployment rate’

Forecasting the June Employment Report will once again be tricky

Forecasting the June Employment Report will once again be tricky.  Reason being is that construction jobs will be hard to estimate, given the removal of the 8K tax credit.  Manufacturing adds a layer of uncertainty as well given last month’s surprise gain (29K) followed by a more pessimistic June.  We look for that sector to still gain 10k.  Construction, as we just mentioned, looks to slip by at least 25K given the bias we stated above.  Census worker hiring should not have much of an impact as that was last month’s story.  Private sector employment was a huge disappointment last month and should rebound in June.  With weekly claims still averaging 466K, don’t look for a robust report.  The following is market consensus;

1)      Non-farm Payroll – Minus 150K jobs

2)      Private Payroll – Plus 110K jobs

3)      Unemployment Rate – 9.8%

4)      Average Hourly Earnings – plus .1

5)      Average Workweek – 32.4 hours

Our bias if for the headline number of minus 110K, a touch better than expectations.  We are spot on with the 9.8% rate, feeling that at a minimum we’ll see that number (maybe 9.9%).  Private sector jobs are too speculative for our blood so we’ll go with the flow on that one (plus 110K).  Overall, the numbers are not expected to show any recovery what so ever on the employment front.  With respect to Austin mortgage rates and pricing, we see little change unless the prints are major outliers, say -200K or plus 100K (Non-farm).  Either one of those would start a major move.  Odds are good that pricing will be pretty close to where it is right now in 24 hours.  That said, this is the highest profile piece of economic data we see.  It can be a major market mover.  Unless you have loaded dice, best bet is to lock in your Austin mortgage rates and get a good night’s sleep.  Here’s what others are saying;

1)      UBS – Minus 150K and 9.7%

2)      Wells Fargo – Minus 100K and 9.7%

3)      JP Morgan – Minus 90K and 9.8%

4)      Moody’s – Minus 150K and 9.8%

Buckle up.  This ride takes off at 7:30 am cst tomorrow morning.

If there is a silver lining, you’ll find it in low Austin mortgage rates today, tomorrow, and well into the 3rd quarter

This one, the jobs report for May took most by surprise.  Even Pimco’s Bill Gross was “shocked”, not expecting the lack of job growth.  For the record, Nonfarm payrolls rose 431K while the unemployment rate fell to 9.7%.  The disappointment came from the number of census workers (411K) making up most of the jobs gain.  Doing the math, that leaves private payrolls rising only 20K, well below expectations.  Construction jobs fell by 35K, manufacturing increased 29K, and private services employment rose by 37K.  I missed that number (services jobs) by a smooth 100K.

Overall, the report does nothing to instill confidence in economic growth.  Matter of fact, it’s started a new group of traders and investors fanning the fires of a double dip recession.  Bill Gross is now calling for unemployment to go over 10% in the coming months.  If there is a silver lining, you’ll find it in low Austin mortgage rates today, tomorrow, and well into the 3^rd quarter.

Adding to the feeding frenzy in treasuries are stories out of Hungary (bad debt jitters), rumors that French Bank Societe Generale has a book of undisclosed bad derivative positions, oil on or near the Florida coast in what is to be the worst oil spill in history, and the Euro hitting new four year lows.  Adding insult to injury, French Prime Minister Fillon is saying he saw only “good news” in parity between the Euro and the dollar.  He must have had a nip of the grape for breakfast.

Cutting to the chase, bonds, note, and mortgage backs are in rally mode, up a point of the 10 year and plus 12 to 14/32’s on MBS.  From an interest rate perspective, buying overnight and post employment report has taken the market above former resistance (119 21 futures/3.34% yield). Daily charts however, have yet to endorse the bullish move and must close above the 8 day moving average and resistance at the old high ( late May level).

Key for you to watch will be a close on cash 10 year notes of 3.26% or lower (currently at 3.24%).  Given a close that betters the 3.26% mark, the bulls will have their way with a new target of 3.09%.  A close at 3.27% or higher will most likely reverse the trend and send us into a consolidation trade.  We’ll try to make “cents” of it later today.

Jobs Report Falls Short

The big economic news this week was Friday’s Employment data, which fell short of Wall Street forecasts and pushed mortgage rates lower. Investors continued to watch the situation in Europe, but there were no major market moving developments. Due to a rally on Friday, mortgage rates ended the week lower.

The May Employment report revealed the largest monthly increase in jobs since March 2000, but nearly all of the gains came from the hiring of temporary census workers. Without the census workers, the data fell short of expectations. A total of 431K jobs were added in May, below the consensus forecast of 500K. 411K jobs came from census hiring, leaving a net gain of just 20K jobs when those workers are excluded. The Unemployment Rate dropped to 9.7% from 9.9% in April, but this was mostly due to people dropping out of the labor force. Investors had expected stronger results from private sector job growth, and the stock market fell after the news. Weak labor market figures generally lead to lower inflation and are favorable for mortgage markets.

The news from the housing sector was more positive. April Pending Home Sales rose 6% from March, which was stronger than expected, to the highest level since October 2009. Pending sales are a leading indicator of future housing market activity. The April 30 expiration of the homebuyer tax credit likely pulled some pending sales forward which otherwise might have taken place later in the year. The benefits, though, of extremely low mortgage rates and very affordable home prices are in place to promote home buying activity even without the homebuyer tax credit.

With yields near record lows and mortgage pricing at or near the best levels in some time, its fool’s gold not to lock in your Austin mortgage rates

Once again, it’s time for the high flying jobs report.  Market expectations are as follows;

1)      Nonfarm Payrolls – Plus 513K

2)      Private Payrolls – Plus 190K (less census workers)

3)      Unemployment Rate – 9.8%

4)      Hourly Earnings – plus .1

5)      Average Hourly Workweek – 34.1 hours

Handicapping the May report has been tough.  The problem lies in just how many census workers were hired in May.  April hiring’s totaled 66K out of total jobs growth of 290K.  This month, analysts are looking for 323K, a number which we feel is understated given a couple of reliable reports already on the street.  Manufacturing surveys have been mixed, leading us to believe that any growth in this sector will be minimal.  Construction may have had a better month in adding to the payrolls but continuing that pattern as the year rolls on is somewhat in question.  Private sector services jobs may be the bright spot, adding about 200K in May.  Total it all up and we see an eye popping 600K Nonfarm Payroll number.

We also estimate that the census portion (new hires for temporary assignment) is 450K, making the net Private sector jobs growth print to be 150K.  ADP estimates for the private sector came in at plus 75K and as I mentioned earlier, the “street” consensus is at plus 190K.  Market reaction to the numbers will depend on how traders interpret the numbers.  High census worker gains will not blow up the bond market.  That number is an immediate subtraction.  The drill down number will be all about Private sector growth.  100K to 200k will not move the market much.  We believe that a print of 250K or more is needed to send yields to higher levels.  No one is looking for Private growth to be under 100K, except for ADP.  The unemployment number is another story.  We see census driven hiring to begin outpacing labor force entry, pulling the rate down to 9.7%.  The street is looking for 9.8%.  The improvement in this number could be the one that starts traders selling.

With yields near record lows and mortgage pricing at or near the best levels in some time, its fool’s gold not to lock in your Austin mortgage rates. If traders jump the sell side, we see the trade to be shallow, say .50 bps worsening to mortgage pricing as cross currents from around the globe will still be there to support fixed income products.  So what are others saying;

1)      Nomura – 425K at 9.7%

2)      Wells Fargo – 511K at 9.8%

3)      JP Morgan – 545K at 9.7%

4)      CIBC – 600k at 9.7%

5)      RBS – 625K at 9.8%

Looks like they have some smart dudes at CIBC.  Buckle up, the ride starts at 7:30 am cst tomorrow morning.

Employment report over 250K should give stocks a lift and punish our pricing for about .25 to .50. Anything less than 50K would hold Austin mortgage rates steady and probably put another whippin’ on stocks

If you happened to catch the stock market trade, you just witnessed one of historic proportions.  At one time the big board was down 990 points.  Reports and rumors are flying around with the best one being that some trader pulled a “fat finger move”, one that was to enter a sell of 1000 shares but came across as 1000000.  Hard to tell as traders are a different breed and not bashful with what they think they know.  Stocks have recovered, now down 390 on the Dow.  Who would have thought that down 390 would be a good thing.  Let’s talk about tomorrow’s Employment Report.  Street consensus goes like this;

1)      Nonfarm Payroll – Plus 200K

2)      Unemployment Rate – 9.7%

3)      Average Hourly Earnings – Plus .1

4)      Average Workweek – 34.1

Given the data we have, standard deviation mathematics, regression analytics, and the Ouija board, we’re comfortable with the 200K number or just slightly less (say 190K).  The unpredictability here comes from the weather related rebound and the number of census worker hired, both hard to handicap.  The household survey points to a much stronger number, up 264K while the ADP estimates out yesterday point to plus 32K.  That spread is big enough to drive a truck through.  Manufacturing and Construction will also be a key with expectations that both are showing signs of improvement.  Strength in the Philly Fed Survey, Empire State Survey and IMF Manufacturing data gave us that tip.  Construction jobs took a beating with the cold weather so more spring like temperatures should show a little pent up demand and hiring in the sector.  Private sector jobs look to be flat to slightly improved and temporary jobs are still increasing, albeit at a slower pace that seen in the first quarter.  So, we’ll place our bet on plus 190K Nonfarm payrolls, 9.6% unemployment rate, and Average Hourly Earnings and Average Workweek to come in on the consensus screws.  What are others saying;

1)      JP Morgan – Plus 145K and 9.7%

2)      Credit Suisse – Plus 165K and 9.6%

3)      RBS – Plus 185K and 9.7%

4)      Wells Fargo – Plus 200K and 9.7%

5)      Barclays – Plus 200K and 9.6%

Expected reaction to an as advertised report should favor stocks and bother bonds.  Reason being is that it would mark two consecutive months of job creation with a “getting better all the time” feel.  We still need to get to 250K just to break even given attrition.  Over 250K should give stocks a lift and punish our pricing for about .25 to .50.  Anything less than 50K would hold Austin mortgage rates steady and probably put another whippin’ on stocks.  With all that is moving markets these days, only the almighty know where we’ll be this time tomorrow.  Best bet for borrowers is to lock your interest rate NOW and buckle up!  Should be a wild ride.

Austin mortgage pricing should remain relatively stable for most of the week and then worsen post Unemployment Report data on Friday

With February in the rear view mirror, bonds, notes, and mortgage backs are starting the new week/month off on the defensive side.  Although last week’s data (Housing, Consumer Confidence, etc.) did not paint a pretty picture of the economy, many are blaming the severe winter weather for skewing the numbers.  To that bias, traders are looking for a soft payroll number on Friday, say job losses of 50K and a 9.9% Unemployment Rate.

Looking at last week’s rally, most of the trade was on short covering which means that traders were not initiating new long positions (expecting the market to continue to rally).  We buy that argument and if correct, we would suggest that you “buy the rumor, sell the news”.  In English, this means that mortgage pricing should remain relatively stable for most of the week and then worsen post Unemployment Report data on Friday.  To be honest, the market is so volatile that any headline seems to lead us up or down by the nose.

Earlier today, Personal Income rose .1% while Spending rose .5%.  PI came in on the low side of estimates and PS was right on the screws.  Construction Spending was also on the docket, down .5%, in line with economist’s expectations.  Private and Public construction both fell while the Federal Government’s construction rose to an all time high of 30.7 billion.  Go figure.

Last up was the ISM report (Institute of Supply Management Manufacturing Index) which fell 1.9 points to 56.5.  The decline came from a drop in new orders and production.  Given the data, we would expect to see at least 15K in manufacturing layoffs in this Friday’s report.  Since this is the first day of March, it also means it’s the last month for the Fed to buy mortgage backed securities. The removal of this stimulus brings the question of “how much of the news is priced in”.  Fed Vice Chairman Donald Kohn said that any increase in rates is likely to be “modest” but added “that judgment is subject to considerable uncertainty”.  Thanks for the advice!

To be sure, we would advise a defensive bias for those clients locking an interest rate this month.  While a number of guru’s are talking about mortgage rates (by year end) being 5.75% to 6.25%, this month will be more critical that most. Someone will need to pick up where the Fed leaves off so be cautious.

Technically, the stall below the tough resistance level tested last week has created a neutral, inside day.  Important point here is that it is not a reversal, only a stall which is corrective in nature.  To get this market moving to the upside (rally) again, the 10 year note will need to close at or below 3.59%.  Currently, we are trading a 3.62% yield, off 8/32’s on the day.  Mortgage backs are off 5/32’s and stocks are plus 81 on the big board.

The week ahead will be loaded with first tier data including everything from Construction Spending, Housing numbers, and the Employment Report for January

The lack of month end buying and rebounding stocks has pinched treasury and mortgage pricing this morning.  10 year notes are off 12/32’s (yield 3.65%), mortgage backs off 6/32’s, and stocks are up 85 on the big board.  The week ahead will be loaded with first tier data including everything from Construction Spending, Housing numbers, and the Employment Report for January.

Earlier today, Personal Income/Spending hit the tape plus .4% and plus .2%, slightly better than economists had predicted yet not anything to write home about.  Construction Spending was another story, falling 1.2% versus the minus .5% many were looking for.  Cold weather and competition from a heavy inventory of distressed/foreclosure sales has done the trick once again.

The ISM Index (Manufacturing) surprised to the upside, putting it its best number since August 2004 (plus 3.5 points to 58.4).  Digging deeper into the numbers, most of the gains came from new orders as inventories need to be rebuilt.  The question now becomes, will buyers step up to take the newly produced goods off the shelf?  Time will tell.

President Obama’s projected budget sets a new record deficit (1.516 trillion in 2010) as the new budget looks to be 3.8 trillion.  Bailout costs for FNMA and FHLMC alone will be 153 billion.  Wow.

Technically, note, bond, and MBS structure are in neutral as follow through to the upside (rally) is not in the cards.  Bulls need the 8 day moving average (currently we’re sitting on it) at 3.65% to hold.  We expect that area to hang in there into tomorrow.  Traders will then make a move, one way or the other, on Wednesday and Thursday to hedge positions up for Friday’s Employment Report.  Tough one to handicap as predictions on Nonfarm Payrolls and the Unemployment Rate are all over the map.  Cautiously optimistic is the best we can come up with.

The U.S. economy lost 85K jobs in December, bringing the total to 7.6 million since the recession started in December 2007

The U.S. economy lost 85K jobs in December, bringing the total to 7.6 million since the recession started in December 2007.  Back month revisions also come into play as October job losses increased 16K while November’s posting improved by 15k.  The November number now stands at plus 4K, the first positive employment growth two years.

The Unemployment Rate remained at 10.0%.  Manufacturing and Construction took the brunt of the job losses for a combined total of 80K.  Health care and the Private Service sector were the silver lining with positive job growth.  The “miss” for most analysis’s came via job losses in the Government and goods producing sectors.  One of the most disturbing figures is that 589K people quit looking for work, pushing that total to 1.85 million in just 4 months. While the report is “less bad”, it’s still not good.

Pre-release, the 10 year note and mortgage backs were off 7/32’s.  On the print, MBS rallied, showing levels that were plus 5/32’s (net improvement of 12/32’s).  The rally was short lived with current levels near unchanged.  Stocks took the news in stride, selling off on at the open but clawing their way back as we speak (currently down 27 points on the Dow).  With the Employment report much worse than expected, we see the underpinning of support for the bond market.

Mortgage pricing should at least hold its own but will continue to be volatile.  Reason being is due to the volatility in the yield curve.  Jaw boning from the Dem’s about another round of stimulus or a jobs package will continue to put pressure on the long end of the curve.  Tax and spend is not our friend.  At the front end of the yield curve, the Fed is firmly anchored at 0% and given continued high unemployment, cheap money from the Fed is here to stay.

What we need is private sector jobs growth to the tune of 250K per month.  Until we see that, expect the economy to waffle around with so many cross currents you’ll feel like you’re in a dodge ball game.   Technically, our charts are net positive for steady to lower mortgage pricing as neither side of the market (bull or bear) has strong signals.  Oversold conditions and neutral ADX, combined with support holding at the 8 day moving average gives us a fighting chance.  Hang in there it will get better.

Jobs Data Falls Short – Austin Mortgage Rates Moved Lower After the News

Over the last few weeks, many economists have been raising their forecasts for economic growth in 2010. The economic data released this week generally did not support this outlook, however, producing some daily volatility. As a result of the weaker than expected data, mortgage rates ended the week a little lower.

In December, the economy lost -85K jobs, which was lower than the consensus forecast of -5K, and the Unemployment Rate remained at 10.0%. A small revision to the November data created a gain of 4K jobs, the first monthly increase since December 2007. The report indicated that 661K people dropped out of the labor force in December. The details suggest that small businesses may be creating jobs more slowly than larger companies. The manufacturing and constructions sectors continued to perform poorly. Average hourly earnings, an indicator of wage growth, showed a small increase. Overall, the data was weaker than expected, and mortgage rates moved lower after the news.

In the housing sector, November Pending Home Sales fell 16% from October, but the decline followed nine straight months of increases and November Pending Home Sales were 15% higher than one year ago. Pending home sales are a leading indicator of future housing market activity. Recent data has been heavily influenced by the timing of the homebuyer tax credit, which was originally set to expire at the end of November. A surge of buyers attempting to purchase before the original deadline pulled demand forward. When the homebuyer tax credit was expanded and extended through the first half of 2010, the time pressure was removed. According to the National Association of Realtors (NAR), we should see another “notable” gain in sales activity in coming months.

Week Ahead

The Economic Calendar will be packed on Thursday and Friday next week. Earlier in the week, the Trade Balance will come out on Tuesday, and the Fed’s Beige Book will be released on Wednesday. Retail Sales, which account for about 70% of economic activity, will come out on Thursday, along with Import Prices and Jobless Claims. The Consumer Price Index (CPI), the most closely watched monthly inflation report, will come out on Friday. CPI looks at the price change for those finished goods which are sold to consumers. In addition, Industrial Production, Consumer Sentiment, and the Empire State index will be released on Friday. There will be Treasury auctions on Tuesday, Wednesday, and Thursday.

What will the effect on mortgage rates be? Worsening pricing but not substantially so.

Meant to post this yesterday.

For the most part, today has been all about squaring positions before tomorrow’s all important Employment Report.  The tight range, back and forth price action, has been with us all day.  Mortgage backs started in the hole, down 3/32’s early this morning but now are down 8/32’s.  Wishy washy trade with a bearish bias.  A worsening price change for .125% is a layup.  Most of the bearish bias has come from “whisper numbers” on tomorrow’s data printing on the positive side.  My number happens to follow suit, looking for a plus 20k jobs growth.

Stocks have traded much in the same fashion, printing on both sides of unchanged as we enter the last hour of trading.  Tomorrow’s jobs report is big from at least two perspectives.  One is that it is the first high profile piece of data in the new year.  Two, it is given an overweight as to the direction of the economy.  No jobs, no growth while the flip side projects just the opposite.  No matter what your bias, be careful with this market as this number creates high anxiety and volatility.  For the record, here’s what the market is expecting for tomorrow;

1)      Nonfarm payroll – Minus 8K jobs

2)      Unemployment Rate  – 10.1%

3)      Hourly Earning – Plus .2% month on month change

4)      Average Work Week – 33.2 hours

While the ADP report (yesterday) predicted job losses of 84K, most traders are looking for a number on either side of unchanged.  Our bias is based upon the weekly unemployment reports that are used in the reporting cycle (for the monthly number).  Average drop has been 20%.  The next factor has been a steady improvement in private sector service jobs.  Last month’s gain in this sector was 51K, the first improvement since November 2007.  We believe it will surprise on the upside again.  Manufacturing and Construction will continue to be the dogs, shedding another 80K jobs combined.  We expect the Government to add about 10K and see the 2% gain in temporary workers shifting into full time, permanent employment.  Add it all up and our call is plus 20K.  We agree that the unemployment rate bumps up just a bit to 10.1%.  What others are saying;

1)      UBS – Minus 35K at 10.2%

2)      Credit Suisse – Plus 10K at 10.2%

3)      RBS – Plus 25K at 10.1%

4)      JP Morgan – Plus 40K at 10.0%

What will the effect on mortgage rates be?  Given that the market has build in a positive jobs bias, anything that is 0 to 50K in jobs growth will not create a strong selloff.  The bias will be for worsening pricing but not substantially so.  This is because the market has already sold off in anticipation.  The surprise trade would be for a number closer to ADP’s, say minus 50K or higher.  This would give us a nice little snap back rally, probably good for ½ point in mortgage pricing.  Given that we are near good support technically (3.88% versus 3.83% current) and the set up (risk reward) favors MBS being down slightly worst case, savvy borrowers may want to not lock going into this number.  On the other hand, this one is tough to handicap and by using the float down option offered by PrimeLending, everyone wins.  Please call Max Leaman with questions about the float down option for your interest rate: (512) 293-1239.