News of huge gains in the nonfarm payroll figure usually cause mortgage investors to nudge interest rates higher as they anticipate the demand for capital will accelerate as the economy expands and creates more jobs.

Even though the Labor Department reported this morning the economy created 200,000 net new jobs last month and the national jobless rate fell 0.2% to 8.5% during the month of December – mortgage investors did nothing more than yawn. Mortgage interest rates are steady and the Dow Jones Industrial Average is trading fractionally lower. The current trading action in the capital markets is a little bit weird – something akin to watching January temperatures in Minnesota approaching 50 degrees!

So what gives?

It appears most mortgage investors had sharply revised up their December nonfarm payroll expectations following yesterday’s outsized gain in the ADP payroll services report. It also appears many analysts are heavily discounting the December payroll gains because much of the robust hiring was largely done in sectors that do a lot of seasonal employment. Details of the report show 50,000 workers where hired in the transportation and warehouse sector, with 42,000 of those positions composed of couriers and messengers. In addition, the retail industry filled 28,000 positions, while leisure and hospitality business such as bars and restaurants added 21,000 workers. Historically job increases in these sectors are usually reversed in January.

It is also worth noting that even with December’s 0.2% drop in the national jobless rate to 8.5% — the unemployment rate averaged 8.9% in 2011, and was down 9.6% and 9.3% in the previous two years. While the improvement in the national jobless rate is welcome – there is no escaping the broad picture which shows joblessness in the United States has just finished its worst three-year period since 1939 to 1941.

These facts combined with lingering concerns over the unresolved European debt crisis and the escalating tensions in the Middle East have served to completely diffuse the otherwise mortgage interest rate unfriendly aspects of this morning’s December Nonfarm Payroll report.

Looking ahead to next week Uncle Sam will be in the credit markets from Tuesday through Thursday looking to borrow $86 billion in the form of 3- and 10-year notes together with 30-year bonds. The December Retail Sales figures scheduled for release at 8:30 a.m. ET on Thursday will be the only notable macro-economic report on tap for the coming five-day business week. Mortgage investors have already priced-in expectations for a decent but not outstanding December for retailers. Given the actual numbers closely approximate the current consensus estimate from economists calling for a 0.2% headline gain for December retail sales – look for little if any directional influence to be exerted on mortgage rates as a result of this report.

Mortgage Rates as of Friday January 6, 2012 ( purchase transactions )

30 day rate locks, subject to credit score and loan to value edits

FHA

30 year fixed 3.75%

Conventional

30 year fixed rate 3.75%

15 year fixed rate 3.25%

5/1 ARM 2.875%

7/1 ARM 3.125%

 

For mortgage assistance, contact Bob Strandell.