Wednesday, April 1,2009

Earlier this morning major media outlets were breathlessly reporting the ADP Employer Services report showed private sector job losses accelerated to 742,000 - a number notably higher than most economists' had expected.

The fact that mortgage investors gave the ADP data little more than a disinterested yawn speaks volumes about how much "bad" news regarding the labor sector is already priced into the market. Traders are prepared for extremely dire headline employment numbers when the government releases their March Nonfarm Payroll report at 8:30 a.m. ET on Friday. The consensus estimate is calling for a loss of 650,000 jobs and a jump in the national jobless rate to 8.5% from its current level of 8.1%. Numbers that match or exceed the consensus estimate won't impact the mortgage market much while a lower than expected headline number and/or a jobless rate less than 8.5% will almost certainly put some noticeable upward pressure on rates. The probabilities favor a March nonfarm payroll report that either matches or closely approximates the consensus estimate - rendering Friday's data virtually meaningless in terms of its influence on the mortgage market.

In a separate report this morning the Institute of Supply Management said its' March manufacturing index posted a reading of 36.3 - slightly higher than most analysts had anticipated, and well ahead of February's 35.8 reading. The manufacturing sector remains weak, but recent figures covering everything from factory employment to durable goods orders suggest the rate of decline is beginning to level out just a bit.

Mortgage investors live in the future - not the present. While this report had no impact on today's rate sheets you can bet that next month's Institute of Supply Management report will draw more than the usual amount of attention. Investors will be keenly interested in the data - particularly if the April report confirms a trend to stronger performance in the manufacturing sector is beginning to manifest itself which would be a preliminary indication that perhaps the worst of the recession is behind us.

To round things out this morning the Mortgage Bankers of America released their application index for the week ended March 27th. The purchase index was little changed, squeaking out a 0.1% gain while the refinancing gauge gained 3.1%. During the week mortgage interest rates set fresh record lows.
Since last week Thursday the central bank has purchased $17.5 billion in Treasuries, as part of a six-month $300 billion program designed to lower consumer interest rates and stimulate economic activity. The Fed will add to their growing Treasury portfolio with purchases of Treasury obligations maturing in the next three to four years today and will return with an encore performance tomorrow when they will look to buy government debt maturing in four to seven years.

Even with their massive financial-fire-power the central bank may not be able to prevent mortgage interest rates from rising fractionally higher - but you can take-it-to-the-bank that as long as the Fed maintains its' market presence - mortgage interest rates are unlikely to rocket sharply higher from current levels. This is definitely not a forever story - but for the time being - the central bank is providing a terrific benefit to lenders and borrowers alike.