Friday, November 6, 2009

The mortgage market was buoyed in this morning's early going by a surprisingly weak labor sector snapshot.


The nation's jobless rate jumped to a reading of 10.2% in October -- matching its highest level since April 1983, while employers axed a steeper-than-expected 190,000 jobs last month. The average workweek length of just 33 hours did not move from the historic low set in September.


The bright spots in this morning's report were few - the government data wonks revised job losses for August and September to show 91,000 fewer jobs lost than first reported. Also worth noting was the fact that temporary employment has now risen for three consecutive months. Temporary employment always tends to accelerate in the early stages of a recovery in the labor sector as employers do everything possible to avoid adding permanent head-count until they are confident a sustained acceleration in economic activity is at hand. This reticence to add permanent jobs will not only forestall meaningful job growth, it will pose a drag on consumer spending - the engine that drives more than 70% of domestic economic activity.


Fixed income investors (those that buy and hold government debt obligations and mortgage-backed securities) are concerned that the government may feel compelled to develop another round of economic stimulus to replace the lack of spending at the consumer level. On its face it sounds like a very worth while and noble idea - but in practice it would lead to a massive expansion of government debt - a condition that would almost certainly put notable upward pressure on private borrowing costs of all sorts.


No one knows for sure how the current economic quagmire will be resolved - but if it involves issuing more government debt you can take-it-to-the-bank the prospects for lower mortgage interest rates will come out on the proverbial "short-end-of-the-stick."


Speaking of government debt, Uncle Sam will be in the credit markets next week looking to borrow a record setting $81 billion in the form of three- and 10-year notes together with a smattering of 30-year bonds on Monday, Tuesday, and Thursday respectively. The three-year notes will likely draw strong demand but the other two offerings may prove to be a problem. If so, it will probably be difficult, if not impossible for mortgage interest rates to move conspicuously lower over the coming five business days.


Next week's economic calendar offers nothing of consequence but does include a mortgage market holiday on Wednesday for the Veteran's Day Holiday.