Morning Report – mixed jobs report 1/10/14

Vital Statistics:

S&P Futures  1837.4 4.4 0.24%
Eurostoxx Index 3111.5 21.2 0.69%
Oil (WTI) 92.63 1.0 1.06%
LIBOR 0.242 0.000 0.00%
US Dollar Index (DXY) 80.8 -0.207 -0.26%
10 Year Govt Bond Yield 2.90% -0.07%  
Current Coupon Ginnie Mae TBA 104.7 0.2  
Current Coupon Fannie Mae TBA 103.4 0.5  
RPX Composite Real Estate Index 200.7 -0.2  
BankRate 30 Year Fixed Rate Mortgage 4.54    
Markets are stronger after a mixed jobs report. Payrolls expanded at an anemic 74k in December (versus the Street expectation of 197k, and the unemployment rate came in lower than expected, falling to 6.7%. Alcoa kicked off 4Q earnings season with a miss. Bonds and MS are rallying on the news.
 
Headline statistics from the report:
  • Payrolls + 74k vs 197k expected
  • Unemployment rate 6.7% vs 7% expected
  • average hourly earnings + .1% MOM, + 1.8% YOY
  • Average workweek 34.4 hours, down .1 hour
  • Labor force participation rate 62.8% down from 63%.
The low payroll number was blamed on weather, which may explain the moves in the market. Stocks initially sold off hard and then rallied back. That said, even if you exclude the weather related effects, payroll growth was still sluggish. The labor force participation rate moved right back to its lows. The participation rate is back to levels we haven’t seen since the late 70s. To put that in perspective, roughly half of the gains in the labor force participation rate that began in the 1960s with women entering the labor force have been given back. We still have a lot of wood to chop before we get back to a semblance of normalcy. One other observation – ADP has been lousy at predicting the jobs number lately. They had the number at 238k. 
 
Chart: Labor Force Participation Rate 1950 – Present
 
 

 
 
The jobs report probably does not change the stance of the Fed, and I would expect another $10 billion reduction in QE at the Jan FOMC meeting. 
 
The Mortgage Bankers Association is forecasting $1.2 trillion in origination for 2014, the lowest level in 14 years. Banks will continue to fire people and there is still overcapacity in the system. I wonder what assumptions about cash purchase percentages they are using…
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