ADP = A Dumb Prediction

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June's Non-Farm Payrolls report showed a lackluster 121,000 new jobs created, well short of the market's 175,000 expectation.  Predictably, mortgage rates are lower this morning on perceived weakness in the economy.

But there's some back-story about why rates are down so sharply.

Each month, payroll processing firm ADP publishes its own version of the national employment picture and ADP's report showed that 368,000 new jobs were created in June.  The publish date is usually two days prior to the "official" NFP report.

So, when ADP released its numbers two days ago, mortgage rates jumped higher because traders were nervously wondering if ADP knew something that they didn't.  It turns out that ADP didn't.

If we look deeper at today's jobs report, though, we'll notice that a few inflationary data points were in there, despite the lack of job creation.  For example, hourly earnings clicked higher to 0.5% showing that workers are getting paid more.

When workers earn more money, it starts a circular process that propels the economy forward:

1. People rejoice in their higher paycheck
2. People consume more things
3. Business needs to make more things
4. Business needs to hire more people to make more things
5. More people get jobs
6. More eople get paid more for jobs because business need to hire more people to make more things
7. People rejoice in their higher paycheck
8. See #1

The market's gut reaction to the weak jobs report is pushing mortgage rates lower today, but a deeper analysis shows that inflation is not a dead dog. 

The FOMC may still make a Fed Funds Rate hike next month just to be sure.