A slow and gentle turnaround in the jobs situation seems increasingly credible--but we still have to put the emphasis on the word, "slow." We continue to find reasons for hope--such as the indicators reported in this issue.

I continue to find the Moody's Economy.com forecast believable. We are, as they predicted, still in the midst of a slowdown; the real estate market is likely to continue to be hit by what may be the last big wave of foreclosures; but the fundamentals are improving, almost out of sight to the naked eye; and the real estate market will gain genuine strength fairly early next year as the economy becomes more solid.

Of course, there are dozens (if not hundreds) of other forecasts making the rounds, many of them far more pessimistic. But the Moody's Economy.com predictions have been right on the money for many months now, and they feel right to me.

Comments care of Steve Peterson, Sierra Pacific Mortgage.


KEY INDICATORS [9/7/10]

 Gold $1258.10/ounce [up]

Crude Oil (Brent) $77.14/brl [up]

U.S. Dollar to…

    Euro .7758 [down]

    Japanese Yen 83.74 [down]

6-mo Treasury Bill Yield 0.18%

10-yr Treasury Note Yield 2.62%

[6-month unchanged, 10-yr up 14 bps]

11th Dist Cost of Funds 1.753%[-]

30-yr Fixed-rate Mortgage 4.76%

15-yr Fixed-rate Mortgage 4.24%

1-yr ARM 3.85%

[HSH averages rates: 30-yr

down 2 bps;15-yr unchged; 1-yr ARM up 1 bp]

 

Mortgage Bankers Association Mortgage Applications Index

week ending 8/27

  Overall

    893.8 (up 2.7%; up 4.9%

the week prior)

  Purchase Money Loans

    173.6 (up 0.6%; down 3.4%

            the week prior)

  Refinancing Loans

    4944.7 (up 5.7%; up 17.1%

the week prior)

 

Jobless Claims 8/28

    472,000 – prior week 473,000 – continuing claims at 4.456 m

 

Construction Spending July

    Down 1% from June, 10.7% from July 2009

 

Employment Report Aug

    Net loss of 54,000 jobs – unemployment rate rose to 9.6%

 

Weekly Commentary

 

We are very likely watching the first stages of a turnaround for employment, though the data for August (released at the end of last week) wasn’t very exciting. The truly good news was that the private sector generated 67,000 new jobs over the course of the month, and while that simply isn’t enough to meet even the normal needs of a nation whose population continues to grow, it is nonetheless a great deal more than most analysts were expecting this past month.

 

At the same time, hourly earnings rose by 0.3% and wages grew by 1.7%. We didn’t get an addition to the number of hours worked per worker, but when we do, pressure for more hiring will likely increase.

 

The new jobs our private economy generated were in a broad group of categories—health care (which has added jobs unceasingly throughout the recession), construction, mining and, perhaps significantly, temporary help services. As the economy uses more temp help, businesses are very likely on the edge of hiring more permanent help.

 

Perhaps the best news in all of this, though, is that this surprisingly positive employment report inspired a very enthusiastic response in the stock markets. We can consider it something of a vote of confidence, which is especially important in a time when confidence has been so low. The Dow Jones Industrial Average climbed by a strong 1.24% during the course of the day when the employment data was announced.

 

And there are other positive signs. The Institute for Supply Management (ISM) reported that its survey of purchase managers forecasts a rise in manufacturing orders, taking the index further into growth mode—from 55.5 to 56.3, with any number higher than 50 indicating expansion. The non-manufacturing counterpart edged down 2.8 points to 51.5, better than consensus expectations among economists.

 

Further, in revisions to second quarter productivity data, unit labor costs were revised strikingly higher—1.1% as opposed to the originally reported 0.2% rise. Perhaps this suggests that more workers are needed to fulfill current orders for goods and services—though it also may be a result of a temporary slowing in economic growth last quarter.

 

One of the most remarkable pieces of data, though, was provided by the Challenger Report, which measures the number and size of job lay-offs in our economy. Announced cuts in employment fell to a 10-year low. This suggests that U.S. companies, operating at a very lean level, may need to hire more employees soon.