Overall, 125,000 jobs lost; unemployment rate falls to 9.5% on discouraged workers; Only 83,000 private-sector jobs added - Rate Lock Report for Friday, July 2nd, 2010
As I predicted yesterday, the highlights of today's monthly jobs report were too few private-sector jobs added, and too many discouraged workers giving up. Results weren't drastically different than expected, though, so mortgage rates have opened the day slightly worse than they closed yesterday.
Each month, the Bureau of Labor Statistics brings us its Current Employment Statistics report, often referred to as the Non-Farms Payrolls report, a survey of 160,000 business and government entities that is intended to measure the total number of non-agricultural jobs existent in the economy. Simultaneously, the BLS also reports the results of its Current Population Survey, or Household Survey, a telephone survey of 60,000 households in the US in efforts to measure the rate of unemployment.
There are some flaws to the methodology of this survey, especially in relation to the unemployment rate. For purposes of the survey, an unemployed worker is defined as someone who does not hold any job, full or part time, nor has worked without pay at a family-owned business in the past month, who has searched for a job within the past 4 weeks. This leads to problems like the one we see in this week's report: 652,000 former workers didn't look for a job last month, and because of that the unemployment rate dropped from 9.7% in May to 9.5% in June.
Of those 652,000 discouraged workers, I expect most will eventually start looking for a job again, so if job creation does ramp up, bear in mind that we have a number of discouraged workers that will return to their searches, and that will push up the unemployment rate again.
Private employers did ramp up their hiring from May, adding 83,000 jobs in June, compared to the revised 33,000 jobs added in the earlier month. Long-term employment growth is dependent upon private employers to add jobs, as government can only borrow so much money to put people to work. The labor force grows by about 100,000 people per month, as that many more children turn 15, the age at which they are first counted in the labor force, than retirees leave the work force. Therefore, 100,000 new private sector jobs are needed to keep pace. Another concern in the private sector component of this report is the balance of job creation; at present more of these jobs are coming from manufacturing companies bringing back laid off workers than from new job creation at the small business level, which has been a historically more important source of long-term job growth.
Mortgage pricing opened slightly worse on this information, but has since broken even with yesterday's close. Mortgages are affected in two ways by the employment data: first, when the data indicates the economy is weaker than expected, all fixed income securities, like mortgages and Treasuries, see lower rates; second, employment specifically impacts mortgages because homeowners need jobs to pay their mortgages; high unemployment increases mortgage risk.
The final factor that will affect mortgage pricing today is the "Friday Effect". In times of weak economic data, investors generally want to enter the weekend holding the safest portfolio of investments they can, and this often means they will sell stocks and buy fixed income, like mortgages and Treasuries. This phenomenon tends to present itself most clearly after 1:00 PM on Fridays. I expect that we will see an uptick in demand for mortgages after that time.
My recommendation for today is that it is Safe to Float rates on most rate lock periods, with the possible exception of the shortest period before closing. Pricing is already as good today as it was at the close of business yesterday, and the Friday Affect should improve it later in the day. Because pricing started a little worse this morning, I expect that many lenders will send out pricing improvements later in the day.
I hope that all of you have a fantastic Independence Day weekend. If you're looking for Fireworks in Rhode Island, check out this great resource from the Central Rhode Island Chamber of Commerce. I was pleased to find that there will be a show in Providence on Monday, as I wasn't expecting one. If you have questions regarding Rhode Island Refinance Rates, or whether or not to lock your loan, please don't hesitate to contact me by cell at (401) 263-8655, or by commenting on this post. Have a great day!
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The Friday Effect (3rd paragraph)
Dan Hartman is a Senior Mortgage Advisor with Province Mortgage Associates, and serves as an Adjunct Professor of Finance and Economics at Roger Williams University and the University of New Haven. He has been helping homeowners and homebuyers with their mortgage questions for over 10 years.
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