Jobs Report and Chairman Powell Speaks
Good afternoon! I hope that you all had an amazing shortened workweek and that you made the most of it! So, here we are on the first Friday of the month and that means the Jobs Report is out this morning.
Always an important measure of the overall economy, the Jobs Report is usually preceded by the ADP Payroll Report and let’s just say that was pretty darned good this past Wednesday, hence the major drop in mortgage bond pricing yesterday.
I think many had it in their mind that we’d see something spectacular with the Jobs Report or more specifically, the Non-Farm Payroll (NFP) report put out by the Bureau of Labor Statistics. This is considered a stripped-down report that excludes farm payroll because that fluctuates given the seasonality of that type of work. It tends to be a highly accurate barometer of what’s truly happening in our economy. Jobs drive wages, right? So, if we get a good jobs report, then the economy must be in good condition and that typically spells disaster for mortgage bond rates because if the economy is solid, money moves away from bonds and towards the stock market. I know, that’s a lot of information to take in but I’m about to add a little more.
While the jobs report came back softer than expected, average hours per week worked ticked up slightly, as did wages and the labor participation rate continues to be strong. So, a bit of a mixed report and both the stocks and bonds markets are reacting accordingly with only modest gains, as of this writing.

Chairman Powel just finished his comments on the state of the economy and said, that the U.S. economy continues to perform well in the longest expansion in history. He also said the Fed will continue to act as appropriate to sustain the economic expansion and that the Fed is not forecasting a recession. You can read that as another quarter point decrease will happen this month. The mortgage gurus don’t believe that we’ll see another rate cut after this one in September.
What does all this mean? Folks, it is still a great time to buy a home! Rates should continue their downward trend, despite some volatility. Mortgage rates are now at a three-year low. Looking to purchase or want to discuss your refinance options? I’m ready to give the data you need to make the choice that suits your goals. Just pick up the phone, text me or send me an email. 😊
Your Daily Technical Update Begins Here
Stocks and Mortgage Bonds are both higher so far this morning. The Bureau of Labor Statistics (BLS) reported that there were 130,000 jobs created in the month of August, which lower than the160,000 expected. There were 20,000 in negative revision to the previous two months – June was revised lower by 15,000 and July was revised lower by 5,000, which makes today’s headline even weaker.
The Unemployment Rate remained unchanged at 3.7%. Let’s take a look at why – There are two different surveys within the Jobs Report – The Business Survey, where the headline jobs figure is derived from, and the Household Survey, where the Unemployment Rate comes from. The Household Survey also has a job creation component, which said that there were 590,000 job creations. But there is another component that goes into the Unemployment rate – The labor force increased by 571,000, and since these figures are very close to one another, the unemployment rate remained unchanged.
The all in U6 Unemployment Rate, which includes total unemployed, plus all persons marginally attached to the labor force, plus total employed part time for economic reasons, moved slightly higher from 7.0% to 7.2%. The labor force participation rate increased from 63.0% to 63.2%. which is the highest in 6 years.
Average hourly earnings rose 3.2% year over year, which was slightly higher than the 3.1% from the previous report. Average Weekly earnings, which we focus on more, increased from 2.6% to 2.9% year over year.
Our good friend Peter Boockvar points out that private-sector job growth has been slowing as of late. Private-sector job growth has averaged 129k over the past 3 months vs 136k in the past 6,165k over the past 12 and 215k in 2018. The trend is clear.
Your Weekly Technical Review Begin Here
The major stock market indexes snapped a four-week losing streak to record their best performance in nearly three months as prospects improved for a U.S. – China trade deal. Despite President Trump’s assertion that the Chinese “want to make a deal very badly,” a spokesman for China’s Ministry of Commerce told reporters China had no plans to respond to the White House’s latest tariff escalation and remarked “China has ample means for retaliation.” At the same time, China’s Foreign Ministry stated the two sides remained in “effective communication.” China is facing a tariff rate of 24.3% by December 15 covering 96.8% of all Chinese imports to the U.S. if a trade deal is not reached by then. However, China may be willing to take a “wait and see” approach to a trade deal before the November 2020 U.S. presidential election in hope that a Democrat candidate soft on trade gets elected.
The week’s economic reports were “mixed.” Durable Goods Orders fell unexpectedly, but the Chicago Purchasing Manager’s Index surprised to the upside. Personal Income growth for July was lower than expected, but Personal Spending increased by 0.6% to exceed expectations. However, the Consumer Sentiment Index for August fell to its lowest level since late 2016 as consumers become more concerned about the impact of tariffs on Chinese imports.
In housing last Tuesday, the Federal Housing Finance Agency (FHFA) reported U.S. house prices increased 1.0% in the second quarter of 2019. Comparing the year ago second quarter, house prices rose 4.99% percent from the second quarter of 2018 to the second quarter of 2019. The FHFA’s seasonally adjusted monthly index for June was up 0.2% from May.
Dr. William Doerner, FHFA Supervisory Economist, remarked “House prices rose again in all states and the top 100 metro areas, but the pace of growth has slackened. The majority of states and cities are experiencing slower house price gains than they did a year ago, even with constrained housing supply and extremely attractive mortgage rates.”
The top five areas in annual appreciation were: 1) Idaho 11.4%; 2) Utah 7.7%; 3) Tennessee 7.2%; 4) Georgia 6.9%; and 5) Arizona 6.9%. The areas showing the smallest annual appreciation were: 1) Delaware 1.2%; 2) Maryland 1.5%; 3) District of Columbia 1.8%; 4) Iowa 2.2%; and 5) New Jersey 2.7%. Of the nine census divisions, the Mountain division experienced the strongest four-quarter appreciation with a 6.6% gain between the second quarters of 2018 and 2019 and a 1.3% increase in the second quarter of 2019. Annual house price appreciation was weakest in the Middle Atlantic division where prices rose by 4.0% between the second quarters of 2018 and 2019.
Thursday, the National Association of Realtors (NAR) reported Pending Home Sales for July 2019 slowed by 2.5% and fell slightly by 0.3% from the year ago period. All regions showed lower sales data from June.
Pending Sales in the Northeast Region fell 1.6% in July; the Midwest showed a 2.5% decline; the South decreased 2.4%; and the West dropped 3.4%.
NAR chief economist Lawrence Yun commented “Super low mortgage rates have not yet consistently pulled buyers back into the market. Economic uncertainty is no doubt holding back some potential demand, but what is desperately needed is more supply of moderately priced homes.”
Elsewhere, the latest mortgage data from the Mortgage Bankers Association (MBA) showed the number of mortgage applications decreased from the prior week. The MBA reported their overall seasonally adjusted Market Composite Index (application volume) fell 6.2% for the week ended August 23, 2019. The seasonally adjusted Purchase Index decreased 4% from a week prior while the Refinance Index decreased 8%. Overall, the refinance portion of mortgage activity decreased to 62.4% from 62.7% of total applications from the prior week. The adjustable-rate mortgage share of activity decreased to 6.1% from 6.4% of total applications. According to the MBA, the average contract interest rate for 30-year fixed-rate mortgages with a conforming loan balance increased to 3.94% from 3.90% with points increasing to 0.38 from 0.35 for 80 percent loan-to-value ratio (LTV) loans.
For the week, the UMBS 3.0% coupon bond finished 32.8 basis points higher to close at $101.984 while the 10-year Treasury yield decreased 2.76 basis points to end at 1.499%. The Dow Jones Industrial Average climbed 774.38 points to close at 26,403.28. The NASDAQ Composite Index rose 211.11 points to close at 7,962.88. The S&P 500 Index gained 79.35 points to close at 2,926.46. Year to date (2019) on a total return basis, the Dow Jones Industrial Average has added 13.19%, the NASDAQ Composite Index has gained 20.01%, and the S&P 500 Index has advanced 16.74%.
This past week, the national average 30-year mortgage declined to 3.55% from 3.63%; the 15-year mortgage rate decreased to 3.25% from 3.33%; the 5/1 ARM mortgage rate fell to 3.38% from 3.42%; and the FHA 30-year rate decreased to 3.25% from 3.30%. Jumbo 30-year rates decreased to 3.68% from 3.75%.
Economic Calendar – for the Week of September 2, 2019
Economic reports having the greatest potential impact on the financial markets are highlighted in bold.
Date | Time ET | Event /Report /Statistic | For | Market Expects | Prior |
Sep 03 | 10:00 | Construction Spending | Jul | 0.3% | -1.3% |
Sep 03 | 10:00 | ISM Manufacturing Index | Aug | 51.3 | 51.2 |
Sep 04 | 07:00 | MBA Mortgage Applications Index | 08/31 | NA | -6.2% |
Sep 04 | 08:30 | Balance of Trade | Jul | -$53.4B | -$55.2B |
Sep 04 | 02:00 | Fed’s Beige Book | Sep | NA | NA |
Sep 05 | 08:15 | ADP Employment Change | Aug | 150,000 | 156,000 |
Sep 05 | 08:30 | Initial Jobless Claims | 08/31 | 214,000 | 215,000 |
Sep 05 | 08:30 | Continuing Jobless Claims | 08/24 | NA | 1,698K |
Sep 05 | 08:30 | Revised Productivity | Qtr. 2 | 2.2% | 2.3% |
Sep 05 | 08:30 | Revised Unit Labor Costs | Qtr. 2 | 2.4% | 2.4% |
Sep 05 | 10:00 | Factory Orders | Jul | 1.0% | 0.6% |
Sep 05 | 10:00 | ISM Non-Manufacturing Index | Aug | 54.0 | 53.7 |
Sep 05 | 11:00 | EIA Crude Oil Inventories | 08/31 | NA | -10.0M |
Sep 06 | 08:30 | Nonfarm Payrolls | Aug | 171,000 | 164,000 |
Sep 06 | 08:30 | Nonfarm Private Payrolls | Aug | 145,000 | 148,000 |
Sep 06 | 08:30 | Average Hourly Earnings | Aug | 0.2% | 0.3% |
Sep 06 | 08:30 | Unemployment Rate | Aug | 3.7% | 3.7% |
Sep 06 | 08:30 | Average Workweek in hours | Aug | 34.4 | 34.3 |
Mortgage Rate Forecast with Chart – UMBS 30-Year 3.0% Coupon Bond
The UMBS 30-year 3.0% coupon bond ($101.984; +32.8 bp) traded within a wider 51.6 basis point range between a weekly intraday low of $101.484 on Monday and a weekly intraday high of 102.00 on Friday before closing the week at $101.984 on Friday.
After trading lower last Monday, mortgage bonds reversed direction and trended higher for the remainder of the week to challenge technical resistance at the 23.6% Fibonacci retracement level ($101.904) on Friday. The bond is “overbought” but trading on a buy signal from last Tuesday. If the price can continue to move higher above the 23.6% Fibonacci retracement level we could see a slight improvement in mortgage rates. If the price falls back below the aforementioned resistance level, mortgage rates could edge slightly higher. Overall, mortgage rates should remain relatively stable with no large interest rate moves in either direction.
