Once again, it’s time for the “Mother” of all economic data releases, the Employment Report for August. Market expectations are as follows;
- Nonfarm Payrolls – Minus 220K (July minus 247K)
- Unemployment Rate – 9.5% (July 9.4%)
- Average Hourly Earnings – .2% change m/m (July .2)
- Average Work Week – 33.1 hours (July 33.1)
On Wednesday, ADP estimated that Friday’s report would see 298K job losses, somewhat correcting the better than expected improvement in July. As you may recall, last month the market expected job losses of 320k and the unemployment rate to jump to 9.6%. Both surprised on the “better than expected” side. Our bias is based on a number of factors, one of which is improvement in regional manufacturing evidenced in the New York Empire report, the Philly Fed Outlook Survey, and the Richmond Fed survey. All have seen a nice improvement, especially the auto heavy regions, with respect to employment. The not so bright side of our opinion is rooted in the construction sector and private services producing industries which are slipping on the employment front. Weekly unemployment claims and continuing claims also play into our call, holding steady at high levels. We see the tale of tape at minus 250K Nonfarm payrolls and the unemployment rate to print 9.6%. Hourly Earnings and Average Work Week should come in as expected. One standard deviation would put our miss at either minus 200K or minus 300K. If we were ‘leaning”, we think minus 300K is a better bet. Tough call though with all the inventory rebuild and cash for clunkers employment to factor in. So what are others saying;
- Nomura – minus 115K at 9.5%
- Barclays – minus 200K at 9.5%
- CIBC – minus 275K at 9.6%
- Wells Fargo – minus 306K at 9.6%
What will this mean to our Austin mortgage rates and Austin mortgage pricing? Any print below minus 200K will bring the stock bulls back and put us in the soup. We could expect Austin mortgage pricing to worsen by at least .50 bps and more likely .75 bps. Any print above minus 250K will firm bonds (improve mortgage pricing) but only by .25 bps or so. Over 300K in jobs losses will send stocks south and improve our stuff by at least .50bps if not more and keep the daily trend structure in place for a move to 3.09% on the 10 year note. The one thing that concerns me is that we are going into the number at strong resistance and very overbought conditions. This puts the risk reward in favor of the bears or simply put, worsening Austin mortgage pricing. As always, this number is a market mover and not for the faint at heart.