Wednesday, October 6, 2010

IT'S GAME TIME!!! REDS WILL ROLL IN PHILLY!!!


A surprising contraction in private payrolls last month has contributed in large-part to this morning's rally in the mortgage market.



ADP Employer Services said private payrolls fell by 39,000 jobs in September, from an upwardly revised gain of 10,000 in August. Analysts had been looking for an increase of 24,000 jobs in September. Many see the ADP data hinting at a worst-than-expected headline September nonfarm payroll number from the Labor Department on Friday.


If that expectation proves accurate, and the economy created fewer jobs than it lost last month, another round of quantitative easing from the Fed will be a "done deal." Look for another $1 trillion of stimulus from the Fed will probably result in a maximum of a 25 basis point drop in 30-year mortgage interest rates from current levels.



More experienced market participants will likely be hesitant to read too much into the ADP Employer Services data since it has underperformed the government's more important nonfarm payrolls figures by 80,000 over the past six months. According to data compiled by Timothy Horman, columnist for Bloomberg.com -- over the past six months, ADP's initial figures were closest to the Labor Department's first estimate of private payrolls in May, when it overstated the gain in jobs by 14,000. The estimate was least accurate in April, when it underestimated the employment gain by 199,000. Assigning a lot of creditability to the ADP number seems to be akin to calling a kid a pitching "ace" because he threw the ball six times -- and all six pitches hit the backstop.



In a separate report, the Mortgage Bankers of America announced that their composite mortgage application index fell by 0.2% during the week ended October 1st. Refinance demand dropped by 2.5% on a week-over-week basis while purchase applications posted a gain of 9.3% for the period.