Economic Commentary for April 4th, 2013: Labor Market Data in Spotlight

Jobs

It was a relatively quiet week for mortgage markets. Most of the labor market data released over the past week came in weaker than expected. As a result, mortgage rates ended a little lower.

There were several minor announcements on the strength of the labor market over the last few days and all fell short of expectations. Weekly Jobless Claims unexpectedly jumped over the 350K level. The Employment component of the ISM Services index dropped sharply in March, which is significant because services represent nearly 90% of US jobs. Most relevant, the ADP forecast for private sector job gains in March dropped well below the consensus forecast to the lowest level since October.

Against this backdrop, the crucial monthly report on jobs comes out on Friday. For mortgage rates, the Fed’s decision to target the Unemployment Rate as a guide for ending the mortgage-backed securities (MBS) purchase program makes the Employment report even more significant. Each time investors grow more concerned that the program may wind down sooner than expected, mortgage rates move higher. This was seen after last month’s stronger than expected jobs data.

Looking ahead, the next couple of days should be very important. The European Central Bank meeting on April 4 will be highly anticipated. Investors are particularly focused on Italy and Cyprus, and they are also looking for the next potential trouble spot in the EU. In the US, the Employment report will be released on April 5. Later in the month, attention will turn to the inflation data.

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