The Labor Department announced this morning that the number of Americans standing in line to file first time claims for unemployment benefits dropped by an unexpected 27,000 during the week ended September 4th. Last week's apparent improvement in the story from the labor sector sent mortgage investors racing to drop prices and nudge up note rates as a few rays of light filter though the darkness of their recessionary thinking.
As they say, the devil is in the detail - and in this case more than a few investors may choose to rethink their earlier decision to sell mortgage-backed securities aggressively this morning after they take the time to read the initial jobless claims report more closely.
It is worth noting that the Labor Department was quick to point out because of the Labor Day Holiday, nine states - including California - failed to file their jobless claims reports by the Labor Department's deadline - so government data wonks simply plugged in guesstimates for those non-reporting states. Once those states actually get around to filing their jobless numbers with the department - the jobless claims revisions over the next two weeks could be larger than normal.
Even assuming no revisions, 451,000 initial claims last week falls far short of indicating a recovery has begun in the labor market. Until/unless the total number of workers filing first-time unemployment claims drops below 400,000 on a multiple-week basis will it be reasonable to suggest the employment picture has brighten notably.
As it currently stands nearly 10 million people are drawing some form of unemployment benefit from the government - and several million more have exhausted their claims and now have no benefits at all. The "so what" factor here is dramatic - were the country gripped by a major recession and simply operating at what might be described as normal conditions - 2 million to 4 million people would be expected to be drawing unemployment insurance benefits. It is painfully obvious we still have a long way to go before the worst job market conditions since the Great Depression show notable signs of improvement.
Today's 30-year bond sale is the last of Uncle Sam's three debt auctions on tap this week. In light of this morning's better-than-expected news from the labor sector some market participants are concerned demand may not be strong enough to avoid the necessity of Uncle Sam "sweetening the pot" by accepting lower prices for these securities to attract the required capital.
There are some rather glaring reasons to believe these concerns are probably misplaced - at least this time around. Should today's auction be more aggressively bid than most observers now anticipate - the chance for a little "relief" rally this afternoon in the mortgage market will improve dramatically.
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