Once again, it’s time for the high profile monthly Employment Report. Tension seems to be mounting for this one as weekly unemployment figures ratchet lower and the economy starts to show signs of life. Median consensus is as follows:1) Nonfarm Payrolls – Plus 185K2) Unemployment Rate – 9.1%3) Average Hourly Earnings - .2% month on month4) Average Work Week – 34.3 Hours (unchanged)We are of the opinion that this is the first month in some time to create 200K or more new jobs. Not much above consensus but just the same, improving to a number that would start to show less layoffs and slightly more hiring. Goods producing industries will help the cause, estimated to have added 50K or more new jobs. Seems reasonable when looking at the strength within the ISM Manufacturing Index. Services Producing Industries should be the big gainer after a dismal performance last month (plus 23K). We’re looking for this sector to tack on as much as 150K new jobs. Financial Services could be the only loser tomorrow, most likely falling by 10K to 15K. Temporary workers should add about 20K. Throw in a little more hiring here and there and our “guess” is that the number comes in right at plus 200K with the Unemployment rate bumped up to 9.1%. Last month’s free fall on that index was all about people “leaving” the workforce, not new hiring. So what does it mean for mortgage rates? Given today’s selling, we see that most but not all of the pain (if we see 200K) is priced into the market. Remember, we still have a situation in the Middle East/North Africa which is far from stable. We also need to have job growth of 250K per month just to break ever (retirement, etc. leaving versus new hiring). With the 10 year note currently at 3.56%, downside risk is to the old lows (high yield) of 3.62%. Probably hurts mortgage pricing by another .25 to .375 tops on a 200K print. Since we are down ½ point in mortgage backs today, the worse case isn’t bad. If however we travel outside that range, say one standard deviation higher, the payroll print would be 235K to 250K. That would get traders attention and sell the market through 3.62%, probably in route to 3.71% by our chart. You could also see the flip side, just like last month. If that happens, traders would run for cover and buy this market back towards 3.42%, allowing mortgage backs to rally for at least ½ point. Odds though, favor stable to slightly worsening mortgage pricing given economic data of late. We always like to advocate that you get out of the way of this report, lock em’ and sleep better at night. So, what are other saying:1) Wells Fargo – Plus 180K at 9.0% (Wells handicapped last month’s number the closest)2) JP Morgan – Plus 200K at 9.1% (sound familiar)3) Barclays – Plus 200K at 9.0%4) Nomura – Plus 235K at 9.1%5) UBS – Plus 235K at 9.0%6) Bank of America – Plus 250K at 9.2%
As you can see, the spread between high and lows from the big boys is not much. Buckle up and hang on tight. Shootin’ starts at 7:30 am cst tomorrow morning.
Scotty
Scott EggenSVP, Capital MarketsPrimeLending, A PlainsCapital Company18111 Preston Road, Suite 900Dallas, Texas 75252
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