No other economic report gets more attention, is more closely watched, analyzed, dismissed, cited as a barometer or has a bigger impact on mortgage interest rates than the Employment Report. I have been in front of a TV at 8:30 in the morning on the first Friday of almost every month for the past 25 years, waiting with great anticipation to see what that number will look like. This is immediately followed with focused spectator fretting and wondering about how the financial markets will respond and what will happen to interest rates throughout the day.
The mighty jobs report can have an immediate and significant impact on your monthly mortgage payment. Generally speaking; a strong employment report tends to be bad interest rate news and vice versa.
An Employment Report with lots of new jobs created, a real increase in hourly wages and a low unemployment rate without a labor force participation asterisk, is often the start of a tough day for interest rates. The financial markets tend to take robust jobs numbers and bolster economic forecasts, reckoning that economic growth and inflation will surely follow. Strong economic data is often a signal that it is now safe to chase riskier equity market assets for bigger returns.
Meanwhile, the safe haven credit markets drain from the flight-to-risky runoff and suddenly there are more Mortgage Backed Securities (MBS) than there are interested buyers. MBS prices move lower and yields move higher. Higher yields mean higher mortgage rates, higher mortgage rates mean higher monthly mortgage payments, higher monthly mortgage payments may alter a well-constructed home buyer decision tree. Every house on the market may have just gotten more expensive.
Financial markets prognosticators argue that economic forecasts are already “priced-in” to the markets well ahead of the actual report. That would mean of course that the jobs report release would have virtually no impact on trading activities, as long as the results are in line with the forecast. The first Friday of 2019 should see numbers that are near forecasts and interest rates should weather the day virtually unchanged.
Every once in a while the actual numbers reported are significantly weaker (or stronger) than expected and the financial markets can respond dramatically. An unexpectedly weak jobs report has been known to trigger a rally in the credit markets and drive rates lower, while upward pressure on rates can result from unexpected strength.
Time was, the unemployment rate alone could be market moving, but now all of the economic data contained in the report is digested and assimilated into market force movements. Bets are placed on which economic release will be the last piece of the tipping point puzzle and the big daddy is always the Jobs Report.
Friday, January 4, 2019 looks to be drama free and interest rate benign.
At least jobs-wise it does.