How Mortgage Rates Are Reacting To The August Jobs Report

• Tweet

The August jobs report was released this morning.

Unemployment rose to 9.7 percent nationwide as employers shed another 216,000 jobs.  The news may not be as bad as it first seems.

Despite ongoing job losses and a rising Unemployment Rate, the jobs report reinforces the notion that the recession may be ending soon, if it hasn't already.

This is because Wall Street tends to treat employment data as a lagging economic indicator.

1. Businesses are slow to hire new workers when the economy is improving
2. Businesses are slow to fire existing workers when the economy is worsening

Because of this pattern, the monthly jobs report rarely reflects the "right now" of the U.S. economy and Wall Street knows it.  More often, the report reflects the economy as it existed several months ago and, based on data, the economy appears to have broken out of its funk in April or May.

Consider these 2 examples of employment as a lagging indicator:

1. Job losses peaked in January 2009 -- 4 months after the September 2008 Financial Crisis
2. Job losses peaked in October 2001, 1 month before the 2001 recession ended.  Jobs finally turned positive in October 2002 -- 12 months into the subsequent recovery

In other words, jobs data doesn't so much tell us about today as it tells us about yesterday.  It's why mortgage rate are improving this morning. Wall Street expected the jobs data to be a little bit stronger than what it was.

All the talk of rising home values and consumer confidence levels may have left investors too optimistic about jobs and consumer spending.  Today, they're shifting expectations and spelling good news for home buyers and rate shoppers.

On a lightly-traded day because of the holiday weekend, mortgage rates are improving.