The unemployment reports beats expectations, mortgage rates jump again
June 5, 2009 by admin
The government released the May non farm payroll report today, surprising most expert’s predictions for the state of the U.S. job market and sending mortgage rates upward in the process. The month of May saw 350,000 additional job losses and the national rate of unemployment has reached 9.4%, the highest level in the past twenty five years. Most economists were predicting the report to indicate job losses of 450-500k for the month of May. The economy has not shown positive job growth in over one year, marking a period when over six million Americans have lost their jobs. Key to the report were two revisions to the April and March report, both of which lowered to the total number of job losses for these periods.
Today’s report was a stunner for the stock market, and helped to send the stock futures skyrocketing. The report also added to the run of oil, which is now hovering above $70 per barrel (a 7 month high), sending the average cost of gasoline above $3 per gallon. The bond market has also rallied off of the news, yields on the ten year treasury have moved past the 3.8% level, breaking a critical resistance point in pricing. The rapid increase in bond yields has a direct effect on the way mortgage rates are priced for consumers. The increase in bond pricing over the last two weeks has lifted fixed rate mortgages by over fifty basis points, and the national average for a thirty year fixed rate mortgage loan is now at 5.5%. The next critical test for the bond market will be the 4% level. Once the 4% level is passed on the ten year bond, it is not hard to imagine that long term mortgage rates could surpass the six percent mark. The mortgage industry was a key beneficiary with the large sell off in the stock market as well as the governments pledge to purchase mortgage backed loan securities. Lenders saw a huge volume of refinance loan applications, as homeowners looked to lock in historically low interest rates. The recent rally in the equity markets along with the rapid rise in oil prices have begun to pressure rates to move up in an aggressive pattern.
Moving forward, this will raise the level of expectations for the economic recovery and future job growth. The probability of the U.S. adding jobs this year still appears to be a long shot. The economy will feel pressure from increasing gas prices, now likely past $3 per gallon and higher interest rates on mortgages. The housing market will be closely following the rise with mortgage rates and future increases could push the FOMC to take additional action in purchasing more mortgage backed loan securities to try and keep long term rates at attractive levels. The equity market has returned to more normalized trading patterns and is likely to draw more capital back into the system as investors can turn their attention to growth and earnings. There are a number of key economic reports due out over the next two weeks including the CPI report, housing and consumer confidence, all of which have the potential to move the markets.