Wednesday, August 5, 2009

The plot thickens.

Data contained in this morning's July Institute of Supply Management Service Sector index together with private reports from ADP Employer Services and global outplacement consultancy Challenger, Gray & Christmas collectively showed employers cut -- or planned to cut -- more jobs in July than analysts had been expecting.


The employment component of the July Institute of Supply Management Service Sector index, a statistical measure of performance in a segment of our economy that represents better than 80% of all activity, fell to 41.5% from the prior month's level of 43.4%. Many see the slippage in the employment component of the broader ISM service sector index as an indication that recent hints of improvement in the labor sector may have been nothing more than a false dawn.


According to the ADP data, employers cut 371,000 private sector jobs last month - well above economists' projections for a tally of 345,000 job losses to be reported by the private payroll processing firm. Separately, the numbers from outplacement company Challenger showed U.S. businesses increased the number of planned layoffs in July to 97,373 - the first increase in this metric in six months and a 31% increase from the 15-month low set in June.


These three reports have left mortgage investors wondering if Friday's more comprehensive nonfarm payrolls report, which also includes a head-count of government sector jobs, may show employers shed more than the 320,000 jobs currently priced into the mortgage market.
In the weird world of bonds and mortgage-backed securities -- a weaker than expected July nonfarm payroll report will tend to support steady to perhaps fractionally lower mortgage interest rates. You can bet there will be some floor-pacing and head-scratching going on among investors over the balance of the day and into tomorrow's close. A big "miss" on the payroll data either way will undoubtedly ratchet up market volatility - as those on the losing side of the actual July payroll data scramble to limit how much they have to pay the winners who were on the "right" side of the labor sector numbers.