Posted May 1, 2014Tweet
On the first Friday of each month, the Bureau of Labor Statistics publishes the Non-Farm Payrolls report. Commonly called "the jobs report", Non-Farm Payrolls highlights employment changes across 10 private labor market sectors including insurance and finance.
Wall Street watches Non-Farm Payrolls closely and the data affects domestic mortgage rates. One reason why is that the Federal Reserve's stimulus programs are linked to the U.S. jobs economy, and the Fed has been actively holding today's mortgage rates low.
The April Non-Farm Payrolls will be released Friday. With a better-than-expected read, mortgage rates will rise into Friday afternoon.
The Non-Farms Payrolls report is a broad look at the U.S. labor market. By industry, it shows which economic areas are expanding, and which areas are contracting. It also reports the U.S. unemployment rate.
Non-Farm Payrolls is a monthly Wall Street highlight. Job growth is paramount to economic growth, and economic growth drives investment strategy.
Recently, the jobs report's importance has been magnified. This is because the Federal Reserve is actively stimulating the economy and its programs will continue so long as the economy requires it.
One such program is QE3. Via QE3, the Fed actively suppresses U.S. mortgage rates to below-market levels. The Fed believes low rates are needed because low rates stimulate housing which, in turn, helps to create jobs in construction, retail, and banking.
Low rates spur refinances as well, which increase household savings and contribute to higher levels of consumer spending.
The U.S. labor market is tightly tied with housing. Jobs provide households with income, confidence and capital. Confident persons are more likely to buy a home or relocate.
As the number of buyers in a market grows, the supply-and-demand curve shifts, which results in higher prices for sellers and the creation of real wealth. This, too, can boost confidence.
Furthermore, employed persons are also more likely to be mortgage-approved. Even before your first day of work, you can get a loan via the offer letter mortgage.
It's no coincidence that as the labor market's returned, so has U.S. housing. Nationally, values are up 15-20% as compared to two years ago and, in some markets including Phoenix and San Francisco, values have increased by nearly twice that amount.
Rising home prices would typically harm a buyer's purchasing power but, because of QE3, rates have stayed low. Affordability is high and buyers are buying.
With a strong jobs report Friday, though, mortgage rates will rise. You get less house for your money in a rising rate environment.
Between 2008-2009, the U.S. economy fell into recession, catalyzed by the failure of Lehman Brothers; the near-collapse of mortgage lending; and the movement of Fannie Mae and Freddie Mac into conservatorship by the Federal Home Finance Agency (FHFA).
7.4 million jobs were eliminated.
Since that period, though, hiring has resumed. 7.7 million jobs have been added back to the U.S. economy -- a 104-percent recovery in terms of "employed persons". The jobs are not of equal pay or stature, but an increase in the number of employed persons remains a positive for the nation.
Furthermore, unemployment rates have dropped, down more than three-and-a-half points.
Should April's job data show strong, the Fed may make a move to accelerate its QE3 taper, which may result in higher mortgage rates.
Analyst calls are for as many as 215,000 net new jobs created in April. You may want to lock your mortgage rate before the Friday morning release is made, however. If the actual reading approaches 200,000, mortgage rates are likely to rise.
In March, the economy added 192,000 net new jobs. For April, it's expected to show 215,000. Save for a very weak number, mortgage rates should rise on Friday. The jobs report releases at 8:30 AM ET.
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The information contained on The Mortgage Reports website is for informational purposes only and is not an advertisement for products offered by Full Beaker. The views and opinions expressed herein are those of the author and do not reflect the policy or position of Full Beaker, its officers, parent, or affiliates.
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