Market News Update - Jobs Report Not What Expected

The August unemployment report that everyone has been waiting for was released this morning at 8:30AM EST.  The national unemployment rate has dropped from 8.3% down to 8.1%.  Although the drop in the employment rate is greater than most experts expected, the underlying numbers are far from positive.

The labor market added only 96,000 jobs whereas the expected range was in the area of 125,000.  In addition, job growth for July was also revised down from 163,000 to 141,000.  All of this data points to ongoing weakness in employment and increases the likelihood that the Fed will launch another round of stimulus.  Some experts believe the announcement will come as soon as next week, as the Fed is having their FOMC meeting.

What a difference a day makes.  On Thursday the stock market rallied on three pieces of significant news.  The first is that the European Central Bank announced a massive bond buying program.  Without going crazy with details, simply put, this new program places some control on the demand for bonds which means that the European government can lower the cost of borrowing for all of the governments in the Euro zone.  If the various governments can borrow money at lower interest rates, the risk of default is now lower. 

The second report on Thursday was ADP’s employment report which came out with a much higher estimate of job growth than anyone expected.  ADP released an estimate for job creation in the amount of 201,000. (I guess they missed the mark big time with this report based upon the actual numbers released on Friday)

The last piece of news that drove the market to rise 245 points on Thursday is the first time jobless claims report showing a larger drop down to 365,000.  This is the lowest number we have seen in the last 4 weeks.

Outside of Thursday’s market moving reports, investors remained on the sidelines in anticipation of Friday’s national employment report.  As mentioned before, the employment report for August came in at 8.1% which normally would be considered a boost for the President.  However, the only reason the rate dropped is because more people dropped out of the job search market, not because the jobs market improved.

The Mortgage Bankers Association reported on Wednesday that applications for both purchases and refinances have declined.  The declines are relatively small in that purchase and refinances declined .8% and 3% respectively.  With interest rates off of their record lows, it appears that borrowers, especially homebuyers, are going to continue to remain on the sidelines until they get a better read on the future of interest rates and the labor market.

It is likely that if the Fed launches another round of stimulus next week, the stock market will rally, ultimately driving up interest rates in the short term.  Remember, when the stock market does well, interest rates usually tend to rise.

Next week’s economic reports are:

• Wednesday September 12^th  – MBA Applications and 10 YR Note Auction
• Thursday September 13^th – First Time Jobless Claims, Producer Price Index and FOMC Announcement
• Friday September 14^th – Consumer Price Index, Retail Sales and Industrial Production

I appreciate your business and look forward to talking to you soon! Have a great day!!!
 

Sincerely,

Cindy Tomlinson
Loan Officer

USLending Company

DRE Lic # 01520422
NMLS # 214851   

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