Mortgage rates extended their streak of moving sideways near the most aggressive levels of the year yesterday.  Although prices of mortgage backed securities were moderately weaker at the end of the day, lenders were not forced to reprice for the worse, leaving rates unchanged at the end of the day but marginally worse than the previous day.  All was generally quiet in the interest rate market....until today.

First out this morning were Weekly Jobless Claims, released by the Department of Labor at 8:30am. This report gives us three measures on the number of Americans who filed for first time unemployment benefits in the previous week.   Since our economy is driven by consumer spending, higher unemployment leads to less spending which is a negative for the stock market and generally supportive of low interest rates.

1. Initial claims totals the number of first time filers.
2. Continued claims totals the number of Americans that continue to file due to lack of finding a new job.
3. Extended benefits totals the number who are receiving emergency benefits beyond the traditional time allowed to collect.

The release indicated that more Americans than expected filed for first time benefits last week.   Initial claims moved to 480,000, above the consensus of only 455,000.  The prior week’s number was revised higher from 470,000 to 472,000.   Continued claims rose by 2,000 to 4.602 million while those receiving extended benefits increased 281,442 to 5.86million.   Following the release of this data, the stock market moved significantly lower, benchmark Treasury yields fell, and MBS prices moved higher. 

For more on the Weekly Jobless Claims, read the MND STORY.

Released at the same time was the Productivity and Costs report.  This data measures how efficient our work force is at producing our nation’s goods and services.  A more productive work force means that employers do not need to hire additional staff to increase production, while unit labor costs measures the labor cost of producing each unit of output.   Higher productivity lowers the unit cost of producing goods and services which helps to keep inflation in check.  

The released indicated a jump in productivity and a drop in unit labor costs.   Productivity for the fourth quarter posted an annualized gain of 6.2% while unit labor costs moved lower by 4.4%.     Higher productivity should help increase corporate profits, which benefits stocks,  while the lower unit costs benefits the fixed income sector as it indicates less inflationary pressures.  Year over year, productivity increased 2.9% while labor costs posted a 0.9% decline.  With 10% of the labor force unemployed, workers are going the extra mile to ensure they do not lose their job. This has resulted in very high productivity levels.

The final report on the day lets us know how busy manufactures will be in the coming months with the Factory Orders report.  This data represents the dollar amount of new orders for both durable and non-durable goods.   Durable goods are products that have a life expectancy of at least three years such as autos, computers, machinery.  Non-durable goods are products that can only be used one time or a product with less than a three year life expectancy.    If orders are increasing, it indicates manufactures will be busier in the months ahead as they ramp up production to meet the demand.  Busier factories can lead to additional hiring which is good for the overall economy and the equities market.   This report has a two month lag, so today’s data is for the month of December. 

Factory orders in December rose by 1.0% better than economists expectations for a rise of only 0.5%. 

I am sure by now you already know that stock markets sold off significantly today. The S&P ended the session -3.11% and the Dow lost 2.61% and moved below 10,000 for the first time since early November. There were several reasons for the sell off, I think the clearest explanation is nervous emotions ahead of a major economic release (NFP). Panic selling in stocks was a huge benefit to the bond market as nervous investors rushed to reallocate their funds into risk free government bonds. This helped MBS prices skyrocket and allowed lenders to offer lower mortgage rates.

Reports from fellow mortgage professionals indicate lender rate sheets are improved from yesterday.  The par 30 year conventional mortgage rate does still remain in the 4.75% to 5.00% range for well qualified consumers.  To secure a par rate you must have a FICO credit score of 740 or higher, a loan to value at 80% or less and expect to pay all closing costs including an estimated one point loan origination/discount/broker fee. 4.75% is the best rate you can get in this market.  If your FICO score is lower, you will have to pay additional fees to secure the par rate or accept a higher rate. 

I have been advising LOCK all week ahead of the Employment Situation Report, which will be released at 8:30am tomorrow morning.

While there have been many whispers for both job losses and job creation, economists are very mixed about the outlook. Worse than expected jobs numbers benefit MBS prices and lead to lower mortgage rates while better than expected data leads to higher mortgage rates.  Despite what I believe is a good chance of a bad report tomorrow, I am still advising to lock loans today.  If the jobs data is worse than expected, rates could decline, but lenders have proven slow to pass along better rates so there is not much room for rates to fall further. If the jobs number is better than forecast or "on the screws", rates will rise quickly, ESPECIALLY AFTER TODAY'S RALLY.  In my opinion, there is little reward and MUCH RISK in floating. Mortgage rates are near their best levels in over a month, still locking.