Danny Salas

Chico, CA Interest Rates Market Report – Economic Influences – October 2, 2009

Bonds Have Topped Off, So Rates Have Bottomed Out

America’s Jobs Numbers Look Dismal

All this talk of a recovery from the worst economic crisis since the Great Depression has been confounded by one ugly truth:  The Job Market is getting worse.  The United States lost 263,000 Jobs, when they only expect a 175,000 figure.  It’s worse than August’s 201,000 job loss number, but better than the 304,000 number, from July.  Revisions to the previous months’ numbers were a negative 13,000, to make things worse.  There are 15.1 Million Americans out of work.  That number alone will help keep a lid on higher rates, even in the face of inflationary pressure from an exhausted Mortgage-Backed Securities Government Purchase Program.

Unemployment Rate Rises

The unemployment rate also rose, last month, to 9.8% from a previous month reading of 9.7%.  1 out of every 10 Americans is unemployed.  And those are the numbers that are being tracked!  Breaking it down, categorically, we’re looking at 64,000 Construction Jobs, 39,000 Retail / Trade Jobs, 51,000 Manufacturing Jobs, and a whopping 53,000 Government Jobs Number…all negative. 

Business Roundtable Releases Cold Hard Facts

The Business Roundtable is a collection of CEO’s, around the country, that employ over 10 million people.  They released information this week elating to the fact that only 13% of them plan on doing any increased hiring in the next six months. 

Rates Bottomed Out?

I think we’ve reached a pinnacle, for the time being, anyway.  Mortgage-Backed Securities should have skyrocketed on this horrific employment news.  However, I think the market understands that the well is drying up.  And even though the economy can really only move forward when the labor market starts mending, if there’s nobody around to buy securities, than rates will increase.

Average Hourly Earnings

This is declining as well.  With almost 10% Unemployment, businesses are jumping at the opportunity to pay people more.  Makes perfect sense, and I think that we’ll have to see an increase in Hourly Earnings, before we start to see any recovery of employment statistics and therefore economically speaking.

Rates Movin’ On Up

So, The New York Fed purchased $20 Billion in Treasuries this past week.  We’re at $904 Billion of the $1.2 Trillion allotted for the program.  So, the Fed will now, only purchase every other week, instead of every week.  This should cause a little insecurity in Bonds, and therefore create much volatility and uncertainty, and I think, higher rates.

Beware, The “High’s” of May

We have hit the high’s of May.  Mortgage-Backed Securities moved up, on all of this negative unemployment information, and just bounced right off the high’s of May of this year.  We’ve Topped Out (and therefore, Interest Rates Have Bottomed Out).  Today is an excellent day to lock!

Related Must Reads

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Read Last Sentence Of This Update Regarding Rates In October
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Chico, CA Interest Rates Market Report – Economic Influences – September 30, 2009

Rates Are Still Low

I’m Down With ADP…Yeah, You Know Me…

Yeah, well I’m NOT so down with American Data Processing (ADP).  ADP is an American payroll company that releases its own unemployment statistics, separate from the government’s statistics.  Sometimes they’re right on…and other times…well let’s just say that other times…they’re just plain rediculous.  So, you have to be careful with the information that they report. 

254,000 Jobs Cut

ADP reported that the private sector of business cut 254,000 jobs.  They only expected that 200,000 jobs would be cut.  So, you’d think that the market would consider that horrible information and interest rates would plunge downwardly.  Part of the problem is the media.  Remember when we were losing 380,000 jobs, or more, a month?  The media’s take on this is that a loss of 254,000 is almost like Christmas!  Well, my take is that there is almost nobody left to lose their job.  So, where’s the good news in that?

The Real Jobs Numbers

So, let’s take a look at where we really are.  The population of the work force of the United States grows, at 1.5 Million people per year.  So, that’s 125 thousand new jobs a month.  So, if we’re losing 254,000 and the work force is growing at 125 thousand…that puts us at 379,000.  That number close to any other number mentioned in this article?  Now think about this…ten percent of that work force is unemployed.  So, fifteen million people are out of work.  But think about the people whose unemployment compensation has run out.  Also, if you don’t physically look for work in a four week period, you’re not included in those numbers, either.  That bring unemployment to more like, eleven percent.  Now, many of the Americans that lost their jobs over the past couple of years, had to settle for part-time jobs.  That’s another six percent.  So, realistically, The United States of America is seventeen percent (17%) unemployed.  UGLY!

What’s Your Point, Danny?

We’ve got a long way to go.  To put it mildly, we would have to have the best employment period, ever on record over a ten year course, to get back to normal six percent (6%) unemployment.  I know, “Danny Doom & Gloom.”  But, don’t let the media tell you that things are golly and rosy out there.  They’re not.  So, this information should keeps low, however, when the government stops buying Mortgage-Backed Securities, rates will move up.  And when inflation moves up, that’s when things could get ugly.  SO BUY NOW!  When I say that employment figures should keep rates down, I’m looking at the 7.0% range, in a couple years. 

Float Like A Butterfly

So, we’ll be ready to “sting like a bee,” with a quick finger on the lock button, but let’s see how the day pans out, before locking.  If you have time…

Related Must Reads

Why You Can’t Close A Loan In Six Days, Anymore
Read PAST ADP Mistakes
ADP Getting Better?

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Chico, CA Interest Rates Market Report – Economic Influences – May 27th, 2008

Losing Ground on Rates

We lost 88 basis points from when I wrote my article last week until I write this week.  What that means for interest rates is this:  It sucks!  Actually, we’re still in relatively good shape.  With most new locks receiving 5.99% on a 30 year fixed (6.102% APR).  What’s a little frightening is that we’ve broken through the 25, 50, and 100-day moving averages, and the next level of support is the 200-day moving average.  That’s another 60+ basis points below today’s level, so hopefully we’ll have some other market indicators change things around soon.

Last week I said I’d be talking about the Fed’s minutes from their April 30, 2008 meeting.  That was, what some feel was, the last cut of .25% from the overnight rate.  So most market analysts feel as the there will not be another cut on the June 25, 2008 meeting.

The Bank of England kept their overnight rate at 5% this month.  They’re concerned with inflation in their area of the world too.

Oil & Inflation

With oil prices moving so high, I’ve mentioned a couple of times that that has a direct effect on the cost of doing business.  So, even though I mention often that the Fed uses gauges that extract food and energy costs, the bond market isn’t liking the fact that we keep seeing record oil prices.  It has to, eventually, have an effect on business, the consumer, and therefore…inflation.  The FOMC minutes also was quite concerned with oil prices.

Jobs Numbers Show Recession Inevitible

Initial Jobless Claims were reported at 365,000.  This is the lowest reading since April 5, but that four-week average move up to 372,500.  This is a recessionary number and shows that the jobs market is still struggling.

Existing home sales for April came in at 4.89 Million.  The inventory of unsold existing home rose to 11.2 months.  This is somewhat of a concern.  New Home Sales for April came in at 526,000.  The inventory for NEW homes declined to 10.6 months from last month’s 11.1.  That news helped stocks a little and pushed bonds lower, causing their yields, and interest rates, to move slightly higher.

As if we didn’t have enough inflation concerns, the European Central Bank, ECB reported inflation at an alarming rate of 3.6%.  So, let’s all take a step back and be thankful as to the difficult job the Fed has in our country.  They’ve really done an excellent job!

Next Week’s Info.

Next week we’ll be reporting on the Fed’s favorite gauge on inflation; the Personal Consumption Expenditure Index.  Since we’ve broken through these three levels of support and the 200-day moving average is still below current levels, it would be prudent to lock.  Particularly, since you’re still able to get under 6.0% interest.  So, continue to buy and look for those good deals…it’s an excellent time to do so…Until next week…