Friday’s bond market has opened in positive territory following mixed results in today’s key economic data. The stock markets are reacting negatively to the news by posting sizable losses. The Dow is currently down 182 points while the Nasdaq has fallen 43 points. The bond market is currently up 18/32 (1.95%), which should improve this morning’s mortgage rates by approximately .250 of a discount point from Thursday’s morning pricing.
Today’s big news came from the Labor Department, who gave us a lot of information that has left many people scratching their heads and unable to decide if it is good or bad news. In December’s Employment report, they showed that the U.S. unemployment rate fell from 5.8% in November to 5.6% in December and that 252,000 new jobs were added to the economy. Analysts were expecting to see a 5.7% unemployment rate and 245,000 new payrolls. It is also worth noting that upward revisions to October and November’s payroll numbers added a total of 50,000 jobs. That took November’s surprise spike from the previously announced 321,000 to 353,000 jobs. These figures indicate employment sector gains that are technically good news for the economy and stocks but bad news for bonds and mortgage rates.
The confusing part of the data came in the average hourly earnings readings that showed declining wages. Today’s report showed that average earnings fell 0.2% last month when analysts were expecting to see a 0.2% increase. That is considered a significant variance. Also, the release showed a downward revision of 0.2% in November’s previously announced 0.4% increase. This news causes concern that inflation is not going to reach the Fed’s target rate. The declining income also means workers have less money to spend, contributing to potentially slower economic growth. Therefore, we can consider this portion of the report favorable news for the bond and mortgage markets.
Since the earnings data is a bigger surprise than the payroll and unemployment numbers, it appears it is having a heavier impact on today’s trading. I would not be surprised to see stocks continue their selling into the weekend. If the major indexes fall further, we should see bonds maintain or extend their gains, possibly leading to an improvement in mortgage rates later today.
Next week has several highly important economic releases in addition to a couple of Treasury auctions that may also affect mortgage rates. There is nothing of relevance set for Monday, so we can expect weekend news and stock movement to drive bond trading and mortgage rates as the week opens. Look for details on next week’s activities in Sunday evening’s weekly preview.