Monday Mortgage News

Market Comment - Week of August 1st, 2011

Mortgage bond prices rose last week, which pushed mortgage interest rates lower. Rates started off on a bad note Monday as the lack of a debt deal between Congress and the President dominated the headlines. The Treasury auctions generally saw weak foreign demand which also didn't help rates. Stocks struggled throughout the week. Fortunately mortgage bonds rallied heavily Friday morning as the Advance Q2 GDP figure disappointed with only a 1.3% increase. Analysts looked for GDP to rise 1.8%. Mortgage bonds ended the week better by about 3/4 of a discount point.

The employment report Friday will be the most important data this week. Any developments raising the US debt ceiling will likely result in market volatility.

Employment

The employment report provides an abundance of information for almost every sector of the economy. Not only does the employment report give basic employment payroll statistics for the major working sectors, it also provides the average hourly earnings and the average workweek. Using this information provided by the Bureau of Labor Statistics (BLS) of the U.S. Department of Labor, economists estimate many other economic indicators such as industrial production, personal income, housing starts, and GDP monthly revisions. Since there is little data for economists to base their estimates on, the margin of error for the estimates tends to be high. As a result, the employment report can cause substantial market movements.

The BLS compiles data from two unrelated surveys that they conduct, the household survey and the establishment survey, in order to complete the employment report. This explains why sometimes there is an unexpected divergence between the unemployment rate and payrolls figures each month.

This week's employment data will provide valuable insight into factors the Federal Open Market Committee will use to make future rate decisions. If employment remains weak the Fed may seriously consider keeping rates low.

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