Economic News For Last Week and This Week...

"IT'S A RECESSION WHEN YOUR NEIGHBOR LOSES HIS JOB; IT'S A DEPRESSION WHEN YOU LOSE YOURS." Harry S. Truman. The big headlines of the week had everything to do with job losses...and some surprising twists within the monthly Jobs Report that arrived on Friday, and caused home loan rates to worsen yet once again. Despite their efforts to improve early in the week, Bonds and rates ended the week .375% to .5% worse than where they began.

Friday's Jobs Report showed that 345,000 jobs were lost in May, far better than expectations for 520,000 jobs lost. And adding to the positive tone were revisions to the two prior months, showing 82,000 fewer jobs lost than previously reported. So all in all, about 260,000 fewer jobs lost than had been forecast. But let's take a closer look.

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Chart: Non-Farm Payroll

Despite the positive news in the estimated number of jobs lost, the official Unemployment Rate, which is regarded as a more reliable indication of the employment situation, actually came in higher than expectations, climbing from 8.9% in April to 9.4% in May...and this wouldn't seem to make sense, given the decline in job losses, so what caused this apparent discrepancy?

The figures come from two separate surveys. The job creations/loss number is mostly derived from the "birth-death ratio" of business creations and those going under, which is subject to enormous and repeated revisions - while on the other hand, the Unemployment Rate is a real survey of about 60,000 households that are asked about their current employment situation, and therefore, is truly a much more reliable number. And even though traders know this, the market tends to respond to the headline number, which points more at a future trend than the Unemployment Rate, which paints a picture of the current situation. Since positive economic news typically is not a friend of Bonds and home loan rates, this report added to the worsening trend both have experienced recently.

And here's another very interesting note, pertaining to the collection of the US Census numbers, which are vital for state and federal budgets and appropriations, amongst other things. The Census occurs every decade, and as we approach 2010, the government has already begun the temporary hiring of approximately 1.2 Million people. These individuals will be put to work for just a few months, but will count as new jobs created.therefore potentially making the numbers appear a bit better over the short term.

In other news, Personal Spending declined slightly in May, while Personal Income came in better than expectations, thanks in part to the economic stimulus package. Overall, indications are that the economy may be strengthening, but this process will likely be marked by continued market volatility. And this volatility we have seen in the financial markets is partly why the Treasury Department announced that they are scaling back their upcoming auctions, as the massive supply has started to weigh heavily on the Bond market and the US Dollar.

All the twists and turns we are seeing make it more important than ever to follow the advice of a knowledgeable mortgage professional who stays tuned in, and can offer good advice as to smart moves to take right now. Let me know if you or someone you know has any questions about your personal situation.

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In terms of economic reports, Thursday will be the big day this coming week. We'll learn more about the health of the retail sector via the Retail Sales Report for May. April's Retail Sales Report was worse than expected and marked the eighth decline in the past ten months for Retail Sales. While May's Report isn't expected to show the consumer out spending wildly, it would be a positive sign to see a turnaround instead of a continued slide lower.

Also on Thursday will be the next Initial Jobless Claims Report. Particularly given the high Unemployment Rate in last week's Jobs Report, it will be important to see if this number shows any improvement.

Remember: Weak economic news normally causes money to flow out of Stocks and into Bonds, helping Bonds and home loan rates improve, while strong economic news normally has the opposite result. As you can see in the chart below, Bonds have traded lower recently, causing home loan rates to move higher. The reasons are many, but certainly due in part to all the extra Bond supply in the market. The Treasury has to have some way to pay for all the massive government stimulus plans, so Treasury auctions have been increasing dramatically - but the added supply is driving prices lower, with home loan rates moving higher. I will be watching closely to see if this trend continues.

Economic Calendar for the Week of June 08 - June 12