Job Gains Stronger Than Anticipated

Mortgage interest rates are setting new 7-year highs this morning, fueled by a much stronger than anticipated report from the Bureau of Labor Statistics (BLS) on the number of new jobs created in the month of October. While the market was expecting only 188,000, the actual number came in at 250,000. It’s surprising to me that the estimate was as low as it was. When you consider that retailers are adding staff to support the holiday shopping demand and that the three-month average number of new hires is 218,000, the number anticipated should have been higher than it was. Hopefully, November’s estimate will be higher to reflect the reasons referenced above.

The US stock markets hit their 200 day moving averages and were immediately pushed lower. This is largely due to pre-programmed sell orders that triggered just before stocks hit this critical level. With nearly 1/3 of the market passively invested in funds that track the index, the ease of predicting such moves has become simple. I believe it will take the stock market at least three attempts before it has a shot of breaking above this level.

Another key concern in the BLS report was the Average Hourly Earnings, which increased from 2.8% to 3.1%. This climb higher is a pre-curser to higher overall inflation, as wages are one of the greatest determining factors in predicting the direction of near-term inflation numbers. Since inflation is the arch enemy of mortgage bonds, this is not good news for mortgage interest rates going forward.

We will clearly maintain our locking bias.