The U.S. unemployment rate fell to a thirty-six month low of 8.6% in November as companies stepped up hiring by adding 120,000 more workers to their payrolls.

Sounds pretty good for the economy on its face – but a little sharper look at the details mutes the story just a bit.

More than 300,000 people left the workforce permanently last month which contributed in large part to the notable 0.4% decline in the national jobless rate from Octobers 9.0% level. The labor force participation rate dropped by 0.2% to 64.0%, just slightly higher than the low point for the recession so far set in July at 63.9%. The unemployment rate may not return to 9.0% but it is becoming an increasingly less useful barometer of labor market trends since it fails to make adequate adjustments to reflect the number of workers who have become so discouraged they have simply quit looking for employment.

The collective story developing in the labor market shows a sector growing so slowly it is just barely able to keep up with the number of new workers entering the market place on a monthly basis. Monthly job creation remains well below the 250,000 needed over several years to return the national jobless rate to its pre-recession level of 6.0%.

From a mortgage perspective the nation’s employment quandary is double-edged. On the one hand, slow economic growth leaves the door wide-open for the Fed to leave benchmark short-term interest rates near historical lows – a condition very supportive of the prospects for steady to perhaps fractionally lower mortgage interest rates. On the other hand, super slow job growth is almost certain to retard demand for either refinance or purchase money loans. Without an accompanying steady to growing demand from the borrowing public – the prospects of lower mortgage interest rates doesn’t really mean much for the housing sector in particular and the economy at large.

Looking ahead to next week the only significant report on the calendar will be Monday’s 10:00 a.m. ET release of the Institute of Supply Management’s Service Sector Index – a value broadly expected to be mortgage interest rate neutral. But just because our economic calendar doesn’t offer much in the way of potentially mortgage market moving government reports – the week is not likely going to be boring.

The trend trajectory of mortgage interest rates will be most significantly influenced by rumors and news reports surrounding a major summit of European financial leaders to be held on Friday, December 9th. Some analysts are suggesting next Friday’s summit will be a major defining moment for the European Union and by extension for global economic history. I don’t know whether such a dramatic description will likely prove to be accurate or not — but I do know tension in the global investor community is extremely high – a condition which sets the stage for the potential of very volatile trading patterns for everything from rice future contracts to mortgage-backed securities. Heads up

Mortgage Rates as of Friday December 2, 2011 ( 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 3.875%
15 year fixed rate 3.25%

5/1 ARM 2.875%

7/1 ARM 3.125%

For Mortgage questions, contact Bob Strandell!