Employers Add Slightly More Jobs Than Expected
Employers Add Slightly More Jobs Than Expected – 8/3/11
Equities sold off sharply yesterday on worries about the increasing probability of a double-dip recession in the US. While the Senate and the President signed off on a deal to increase the debt ceiling, negative news on manufacturing growth spooked investors, leading to one of the biggest one-day declines in stocks in 2011, as all major indices declined by more than 2%. The debt deal did inspire confidence in one area: money flowed freely into fixed income including US Treasuries and mortgage-backed securities, pushing rates down for the third consecutive session. Pricing has now improved nearly 200 basis points since Thursday, one of the largest one-week improvements in recent history. The temporary premium that had been baked into Treasury bill pricing was erased, with yields falling back to recent lows below .05%.
This morning we get the first look at the three significant employment reports due this week. Payroll and human resources firm ADP released its monthly report on employment on private payrolls, stating that private firms had added 114,000 jobs in the month of July. This was slightly above economist expectations for 86,000 jobs added, but not so much so that it is likely to have a significant effect on pricing. ADP also removed 12,000 jobs from its estimate for June, revising that number down to 145,000. The ADP report has lost some of its luster in recent months due to significant discrepancies from the results of the Bureau of Labor Statistics report, so it is not as influential as the other report, especially when the difference from expectations is as small as this one. Tomorrow’s unemployment claims report could have a somewhat greater effect, but markets have much more on their plates right now than just reviewing economic data.
The debt deal is still under analysis, and the ongoing assessment is that the deal will have almost no effect on government spending in 2011, and very little effect in 2012. Of course, we don’t know what the deficit committee is going to present later this year, but with the late timing of those proposals, it is unlikely that any significant change in this year’s spending will occur. Analysis continues.
Other economic news this morning was mixed, but essentially in line with expectations. The ISM Services index showed a fractional decline in service sector growth, and factory orders were lower, but less then expected, and actually showed gains when transportation orders are excluded.
The next few weeks will be spent looking for direction in the economic numbers, especially employment and manufacturing. For today, pricing appears to be relatively stable, but that could change based on the stock lever, in the event that there is a shift in stock markets. Stocks are at a pivotal turning point, with the S&P 500 index hovering just above its key support level at 1250. The index has stayed above that point all of 2011, bouncing higher each time it fell to that point. If the index falls below 1250, it has quite a long way to fall before hitting the next support level, and that could mean very bad things for 401ks, but good things for mortgage rates. There doesn’t appear to be any reason to rush to lock loans today, but it is important to be mindful of the next two days’ significant employment numbers.
Rate lock recommendations, by days to loan funding:
<15 days: lock
15-30 days: consider floating
30+ days: float