Locking bias

The ADP Employment Report for the month of April was released this morning showing that 177,000 new private sector jobs were created.  This was slightly higher than the 170,000 anticipated by the markets, but not enough to make a significant dent in mortgage bond prices.  When you take into consideration that they also lowered the prior month’s reading from 263,000 down to 255,000, the net impact of the two months brought the overall projection right in line with overall expectations.  The more significant reading will be released on Friday morning by the Bureau of Labor Statistics (BLS).  This will be the potential market mover and the report to more seriously consider. 

A deeper look at the ADP report shows that the service sector continues to be a pillar of strength in our job market, adding 165,000 of the new job total.  Consumers are spending money in this area, which is largely responsible for the growth in both job numbers as well as in overall GDP.  A second point of interest was in the construction industries, which lost 2,000 jobs last month.  Given that we are heading into the stronger building months of summer, this was not a good sign for new construction.  We would love to see this number move higher, and more new homes be built to help balance the demand for housing. 

Bonds remain trapped in a tight trading range.  With the potential volatility tied to Friday’s BLS report, we will maintain our locking bias.