Weekly Economic Summary –
April 7, 2011
Last week in review
(March 28 – April 1, 2011)
The headline jobs report number showed that 216,000 jobs were created in March, which was a positive surprise as this was above expectations. A small 2,000 upwards revision to February's prior release added some more jobs as well.
In addition, the unemployment rate surprisingly dropped to 8.8%, which is the lowest unemployment rate since March 2009. Remember, the unemployment rate is derived from the household survey, and is considered to be more accurate than the current employment statistics or business survey, which is used to determine the headline jobs number.
The one negative within the report is hourly earnings coming in at 0.0%. This is the second month in a row where earnings growth is 0.0%. Why is this significant? If earnings don't grow, people have less to spend and as a forward looking indicator on job growth, it shows that businesses are presently not under any pressure to raise wages. This means they may not have to hire new people as quickly because they may have room to raise wages for present workers down the road.
Overall, the jobs report was a good report and reminds us that the trend in the labor market is improving. But keep in mind, while lowering unemployment is good for the economy overall – as are the other two goals (creating inflation and boosting stock prices) of the Fed’s current Quantitative Easing (QE2) program – these goals can also lead to higher home loan rates over time.
In fact, inflation continues to be a growing concern around the world and in the U.S. Several members of the Fed, including St. Louis Fed President James Bullard, have expressed concern that if the Fed waits "too long (to remove accommodative monetary policy) we will get a lot of inflation in the United States and around the world."
What does this mean in the long run? Like the Treasury Department, at some point the Fed will start selling some of its massive holdings and unwind their QE1 and QE2 purchases. And when it does, not only will the bond market lose a buyer in the Fed, but they will gain a seller and this will make it hard for mortgage backed securities and home loan rates, which are tied to these types of bonds, to meaningfully improve.
As you can see in the chart below, bonds and home loan rates managed to end the week about the same place as where they began...despite the volatility. I’ll be watching closely to see what this week brings.
Chart: Fannie Mae 4.0% Mortgage Bond (Friday, April 1, 2011)
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In the news this week (April 4 – 8, 2011)
With the nuclear crisis still to unfolding in Japan and the unrest in the Middle East, world events may continue to surprise our markets. Otherwise, it’s a quiet week when it comes to economic reports. We’ll talk about these reports next week and their impact on the bond market
Economic calendar for the week of April 4 – 8, 2011
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