Real Estate Toronto Canada

The BLS jobs report this morning shows an increase of 431,000 jobs, but 411,000 of those jobs are temporary, government paid census workers, so the real increase is only 20,000 jobs for the month. The unemployment rate, which is figured through a different system, ticked down to 9.7%. In the mortgage world, the monthly unemployment report is always the report which is most anticipated and has the most influence on mortgage rates. Employment is the base of the economy, and when employment is strong more people feel good about their prospects, and are willing to spend money. When employment is weak people tend to pull back, and even if they have a job, they save more than they spend. Over the last months the employment has changed from bleak, to somewhat optimistic. The pace of job loss has slowed considerably and we have gained jobs each of the last several months. The expectations for this job report were all over the board, and with so many census workers in the mix, the popular wisdom was that a surprise to the upside was likely. Some analysts were predicting as many as 700,000 new jobs, so this is a very weak reading on the economy. For more bad news, the prior 2 months employment numbers were revised lower, too, and in a because new people are constantly added to the job market it takes 150,000 new jobs a month just to break even.

This report is always looked at as a way of taking the temperature on the economy. We have been in a severe recession, but many analysts were anticipating that due to stimulus spending, we were going to shoot back to recovery quickly (the V shaped recovery). The stock market has been in that camp. The fear from those who thought that this would be a fast, robust recovery was that with so much money flowing into the system inflation was sure to follow. This report is one more indicator that inflation is the least of our problems. The popular thinking now is that this recovery is likely to be slow and arduous, and that there is more pain to come. This news is bad for stocks, but bonds (including mortgage backed securities) will benefit. Low inflation (or deflation) means that bond investors know their long term interest won’t be eaten away by inflation (paying back their guaranteed return with cheaper dollars). As i write this, mortgage bonds are up a HUGE 43 tics for the morning. This means that mortgage rates will be lower today, and it also means that the trend may be for lower rates. There is no doubt that this report is bad news for the economy, but if you are looking to buy a home or refinance your mortgage, this is good news and you are likely to get a lower mortgage rate.

Peter Thompson 630-479-6424

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