Locking bias

After investors had the weekend to digest Friday’s Bureau of Labor Statistics (BLS) report on new hires for the month of April, mortgage bonds went up slightly this morning.  The Headline number showed that just 160,000 new jobs were created.  Since this was well below the 200,000 anticipated by the markets, it was considered to be a disappointing report. 

A deeper look into the BLS report shows some interesting news.  In the age category of 25-54, which is the heart of the US labor force, there were significant job losses.  In fact, most of the job gains we did receive were in the age category of 55 and older.  Of further concern, there were also significant job losses in the age category of 24 and younger.  You can’t help but wonder how much influence the recent increase in the minimum wage many states initiated had on this.  It could be that job losses for younger people, now that wage requirements are higher, is one of the unintended consequences of this move.  Based on the overall report, one could argue that people age 55 and older are now replacing some of the jobs that were held by young people age 24 and younger.  If employers are forced to pay higher wages, they could be requiring more experienced workers, which creates a significant disadvantage for the younger generation in need of work.  An interesting thought to consider. 

As for the Unemployment Rate, it held steady at 5.0%.  A look back at historical charts shows that recessions generally always follow times of such a low rate of unemployed workers.  With the last recession being more than seven years in the past, the probability of the US facing a recession within the next two years is moving higher.  That’s bad news for the incoming president, who will be in office for at least four years and will most likely face a recession at some point in their term. 

Bond prices are bumping right up against multi-year high levels.  This places mortgage interest rates near the lows of this time frame.  Unless bond prices are able to break above this level, there is little benefit to float.  Therefore, we will maintain our locking bias.