CHM Blog

August employment data: unemployment rate 3.7% +2.0% from July (expectations 3.5%). NFP jobs 315K (expectations 293); private jobs +308K (expectations 280K). Average hourly earnings +0.3% (expectations +0.4%), yr./yr. +5.2% (expectations 5.3%). Labor participation rate 62.4%, up from 62.1% in July. More jobs than forecasts, unemployment rate higher than thought, average hourly earnings lower. The immediate reaction was subdued, the 10 yr. at 8:40 am ET 3.25% -1 bp, MBS prices -3 bps. The stock index’s initial reaction pushed the DJIA up 188K. The job gains were led by professional and business services, health care and retail trade. Leisure and hospitality posted the smallest payrolls gain since a decline in December 2020. Job growth has been resilient this year, despite a contraction in the overall economy in the first half and aggressive interest rate increases by the Fed.

Unlike most monthly employment reports the initial reaction was quiet, by 9 am though the 10 yr. note yield declined 3 bps and MBS prices at 9 am +22 bps.

At 9:30 am the DJIA opened +210, NASDAQ +96, S&P +34. 10 yr. 3.22% -4 bps. FNMA 5.0 30 yr. coupon +23 bps from yesterday and +27 bp from 9:30 am yesterday. (4.5 coupon +31 bp and +32 bp from 9:30 am yesterday)

The August employment report better than estimates showing the workforce is solid. The increase in the unemployment rate implies more workers are working. It’s worth pointing out that the total number of people working in the US hit a fresh high in August, at 152.7 million. The employment-population ratio for prime workers -- those aged 25 to 54 years -- ticked up for the second-straight month. The report is going to revive the 50 bp move from the FOMC in three weeks, revive it but for us not change it, still hold the Fed will go 75bps.

July factory orders plunged, down 1.1% on forecasts of +0.2%.

The improvement today driven more by technical factors, both the treasury and mortgage markets are very over-extended after the recent uninterrupted declines in prices and rate increases. The fundaments haven’t changed, the Fed will still tighten, as Powell stressed at Jackson Hole last week, also FOMC members recently have been tilting to 75 bps in three weeks. 75 or 50 will continue to be argued.

PRICES @ 10:00 AM

S&P 500: 3981 +14

Richard Sardella has been actively managing and providing services in the mortgage industry for over 30 years. Richard serves on the board of directors as President of Colorado Home Mortgages Inc.

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