Float only if you can watch the markets closely

Float only if you can closely watch the markets.

Following a disappointing Jobs Report from the Bureau of Labor Statistics (BLS), social media is blowing up with what seems to be a contradictory headline.  On one hand, media is blasting the job market as weakening while on the other hand saying that the Unemployment Rate hit its lowest level since May of 2001.  Understandably, this does seem to be a conflicting message.

Let me explain:

The job gains figure and the Unemployment Rate are derived from two different surveys.  Job gains are from surveys the BLS takes directly from data collected from employers.  That showed 138,000 new hires, which was 47,000 below the market’s expectations.  The Unemployment Rate comes from a household survey which is from a sampling of phone calls.  The results of the household survey estimate that 233,000 new jobs were created.  At the same time, the household survey also showed that 429,000 people left the labor force. Therefore, the unemployment rate fell from 4.4% to 4.3%, bringing it down to a 16 year low.

Overall, the report was a stinker.  The Unemployment Rate fell for the wrong reasons.  For our economy to strengthen, we need to see the percentage of Americans working increasing.  The labor force participation rate is near 40+ year lows.  It has fallen sharply over the past eight years as stock prices rose (allowing people to retire) and entitlements shot higher (more people on Social Security, disability and welfare programs).

Mortgage bonds shot higher on the news, breaking above the formidable ceiling of resistance that has held back rates from improving since last November.  If bonds can stay above this critical level, we could see a reversal of the direction of the trend of mortgage rates, which has called for higher rates since the Presidential Election last November.  That would be welcomed news for the mortgage and real estate industries.  However, it is still too early to say if that will happen.  We would expect bonds to fall back below this level and continue to battle this ceiling once more.

History would again say that now is a great time to lock.  However, if bonds do remain above this critical level, we will see downward pressure on mortgage interest rates.  Therefore, float only if you can closely watch the markets and be prepared to lock should bonds retreat as the day wears on.