Rates rose after this morning’s BLS report showed the economy added 243k non-farm payrolls in January, the most since April 2011 and beating expectations of 135-145k.

December was revised from 200k to 203k new jobs created and November was revised from 100k to 157k.

This figure doesn’t count actual people, it counts how many companies opened or closed, then uses that data to estimate the number of jobs gained or lost.

Unemployment dropped to 8.3% from 8.5% according to a different part of the jobs report called the ‘Household Survey’ which counts people. This is the lowest since February 2009.

Rates rise when mortgage bonds (MBS) sell, and today’s selling trend breaks a two month-theme. Up to today, MBS initially sell on better U.S. economic news like this, then recover. But we’re not recovering this morning since jobs were a definitive upside surprise.

The 3.5% Fannie Mae coupon—a key benchmark lenders use to price consumer rates—has been down as much as 52 basis points which translates into rates .125% to .25% higher if the selloff holds. But impending Eurozone trouble continue to temper selloffs to keep rates from spiking: 30yr fixed single family home loans to $417k look like they’ll still end the week below 4%.

More in WeeklyBasis recap/outlook tomorrow, and here’s a deeper dive on today’s numbers.
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Source:
BLS January Jobs Report

- Headline Nonfarm jobs was +243,000. Consensus was 135,000
- Unemployment Rate was 8.3% down from 8.5% in December 2011
- Average hourly wage $23.29 up from $23.24 in December 2011
- Average work week was 33.4 hours down from 33.7 in December 2011
- Private jobs were +257,000. Government jobs were -14,000

Reading beneath the surface:

-Good producing jobs were +81,000.

-The size of the civilian labor force rose from 153,887,000 to 154,395,000.

-The labor participation rate (percent of adult non-institutionalized population who are part of the labor force) fell to 63.7%. It was 64.2% a year ago.

This is the part I find interesting: according to the 4 week moving average of Initial Jobless Claims 1,511,000 people lost their jobs in the last 4 weeks. That normalizes to 1,637,000 lost jobs in a month (there are about 13 four-week periods in a 12 month year.) This is up from the previous month’s 1,617,000 lost jobs/month.

The question is this: if 1,637,000 people lost their jobs last month and we gained 243,000 jobs, how did that happen?

The answers are in the Household Survey segment of the jobs report.

In January 2012 BLS measured 4 sets of people entering or leaving the jobs market:

- Job losers and persons who completed temporary jobs was 7,321,000 down 281,000 from December’s Job Leavers and down 1,141,000 from January 2011.

-Job leavers was 939,000. This includes anyone who retired or voluntarialy left working. This was down 23,000 from previous month and up 25,000 from January 2011.

-Reentrants was 3,325,000. Reentrants are people who were looking for a job a found one. This was -74,000 from previous month and -26,000 from January 2011.

-New entrants were 1,337,000. These are unemployed persons who never worked before and who are entering the labor force for the first time. This was +61,000 from previous month and +84,000 from January 2011.

In summary: few people lost their jobs, fewer people left their jobs, more unemployed people got jobs, and more people entered the labor force for the first time.

The largest factor was that fewer people lost their jobs. The number of job losers each month is about 30 times the change in jobs. It may be the case that fewer temps were laid off. That would explain why initial jobless claims were up and job losers was down.

Fewer temps being laid off is an early sign of recovery in the jobs market. One concern is that inventory buildup continues to outpace consumer spending and unless consumer spending picks up, some of the gains seen here will be given back.

Rates rise when mortgage bonds (MBS) sell, and today’s trend continues a two month-theme: Mortgages sell right after better economic releases and EU aid news, then recover. The 3.5% Fannie Mae coupon—a key benchmark lenders use to price consumer rates—was down 30 basis points in early trading and is now up 23 basis points. Impending EU trouble (and MBS-focused QE3 rumors) have tempered—and reversed—selloffs to keep rates from spiking from current record-low levels.

More in WeeklyBasis recap/outlook tomorrow, and here’s a deeper dive on today’s numbers.

Reading beneath the surface:

-Good producing jobs were +48,000. The largest gain in a while.

-The size of the civilian labor force fell from 153,937,000 to 153,887,000.

-The labor participation rate (percent of adult non-institutionalized population who are part of the labor force) stayed at 64.0%. It was 64.3% a year ago.

This is the part I find interesting: according to the 4 week moving average of Initial Jobless Claims 1,493,000 people lost their jobs in the last 4 weeks. That normalizes to 1,617,000 lost jobs in a month (there are about 13 4 week periods in a 12 month year.)

The question is this: if 1,617,000 people lost their jobs last month and we gained 200,000 jobs, how did that happen? The answers are in the Household Survey.

In December 2011 BLS measured 4 sets of people entering or leaving the jobs market:

- Job losers and persons who completed temporary jobs was 7,602,000 (up 3,000) from previous month and down 1,275,000 from December 2010.

-Job leavers was 953,000. This includes anyone who retired or voluntarialy left working. This was -52,000 from previous month and +33,000 from December 2010.

-Reentrants was 3,399,000. Reentrants are people who were looking for a job a found one. This was +44,000 from previous month and -7,000 from December 2010.

-New entrants were 1,280,000. Unemployed persons who never worked before and who are entering the labor force for the first time. This was +4,00 from previous month and -26,000 from December 2010.

What does all of this mean? It means that the economic and social factors associated with the jobs market are vastly more complex than just the 2 pieces of data: change in jobs and unemployment rate. There are demographic factors (people retiring and young people entering the jobs market) which are as significant as the changes in the set of people continually part of the labor force.

Analysis of the monthly report is but another example of the unwillingness of the media to try to understand and explain a complex topic. The average newspaper has 10 times more analysis of a football game than it does of the jobs market.

Rates rise when mortgage bonds (MBS) sell, and today’s trend continues a theme all week: mortgages sell sharply right after ok economic releases and EU aid news, then recover. The 3.5% Fannie Mae coupon—a key benchmark lenders use to price consumer rates—was down 38 basis points and is now up 6 basis points. Long trading session ahead, but so far impending EU trouble and potential MBS-focused QE3 have tempered—and reversed—selloffs to keep rates from spiking. If this morning’s MBS levels hold, my outlook for rates net up slightly on the week will also hold. More in WeeklyBasis recap/outlook tomorrow.

We should pay attention to the labor participation rate not the unemployment rate because labor participation drives the economy. The labor participation rate (Civilian Labor Force/Civilian Noninstitutional Adult Population on this table) has dropped 0.5% in the past year.

Last month 120,000 found work and 315,000 gave up looking for a job. If you think that is good, feel free to celebrate but do not invite me to the party.

Average Hourly Earnings were down -0.1% and the Average Work Week was flat at 34.3 hours.

Jobs
-ADP Private Sector Jobs, November +206,000
-Previous was 110,000, Consensus was 130,000
-This will revise upwards expectations for Friday’s BLS Jobs Report
-Full ADP report
-Related: Challenger Job-Cuts for November were 42,474.

Mortgage Applications (week ending 11/25)
-Composite Index, Week/Week -11.7%
-Purchase Index, Week/Week -0.8%
-Refinance Index, Week/Week -15.3%
-This data is of little meaning because of Thanksgiving

NAR Pending Home Sales, October
-Pending Home Sales Index 93.3
-Pending Home Sales Index, Month/Month +10.4%
-For homes entered into sales contracts expected to close in 60 days
-But remember 33% fallout on NAR’s existing home sales

Worker Productivity/Unit Labor Costs
-This is for 3Q2011
-Nonfarm worker productivity, Quarter/Quarter +2.3%
-Unit labor costs, Quarter/Quarter -2.5%
-What is troubling in the long term is the decrease in the past 3 years of Worker Productivity (GDP/hour worked.)

Chicago PMI
-Chicago area manufacturing index was 62.6 in November
-Above previous and consensus, and highest since April
-50 is dividing line between expansion and contraction
-Full Chicago PMI report
-Key notes from Briefing.com: “Whereas other regional manufacturing surveys have repeatedly shown stagnant or even downward-trending manufacturing growth for the past few months, the Chicago area has remained strong. This may be due to a heavy bias toward auto manufacturers, which have expanded production substantially since the supply shortages following the Japanese earthquake and tsunami.”

Below I recap last week, preview what’s coming next week, and remind consumers how to lock record rate lows that come and go in minutes. NOTE: Bond/rate markets closed Friday, November 11 for Veteran’s Day.

RECAP OCTOBER 31 – NOVEMBER 4 MARKET WEEK
Manufacturing: The Institute for Supply Management October manufacturing index was 50.8, with 50 as dividing line between expansion and contraction. September was 51.6. Good news: 27 months of growth. Bad news: barely growing.

Fed AND European Central Bank Meetings: No surprises from the Fed: overnight bank-to-bank rates near zero and they’ll continue reinvesting proceeds from mortgage holdings into new mortgage bonds to keep longer-term rates low. Europe’s Fed equivalent, now led by Mario Draghi, cut their one-week bank-to-bank rates from 1.5% to 1.25% to provide extra liquidity amidst debt crisis.

Jobs Report: 80k non-farm jobs were created in October. Weak report even with September revised from 103,000 to 158,000 and August revised from 57,000 to 104,000. About 2.3m jobs were created since an employment trough in February 2010, but there are still 6.47m fewer jobs than the beginning of the recession in December 2007. Over the past 12m, about 125,000 new jobs were created per month: not enough to keep pace with population growth.

PREVIEW NOVEMBER 7-11 MARKET WEEK
Here are next week’s economic calendar highlights with rate impacts:

Greece/Europe: Rates and stocks rose after the Oct 27 EU deal saying private Greek bond investors must take 50% writedowns. This was one condition of the next EU/IMF bailout payment Greece needs within 30 days to stay afloat. Another condition is ongoing austerity: pay cuts and tax hikes. So last week Greek prime minister George Papandreou said he wanted to let his people vote on austerity measures—as though they have a choice. The result: rates dropped again as U.S. mortgage bonds rallied and stocks sold. This up-down rate (and stock) trend will continue as the Greek charade continues.

Treasury Auctions: $72 billion in new Treasury debt will be auctioned into markets as follows: $32b 3yr Notes Tuesday, $24b 10yr Notes Wednesday, $16b 30yr bonds Thursday. Demand for these auctions, especially the 10yr and 30yr maturities, can dictate the mood in mortgage bond trading, but rates should remain even on auctions as U.S. debt remains a safe haven.

Consumer/Real Estate Themed Earnings: Another big earnings week with lots reports that will give a reading on consumers and real estate, including: Priceline.com, Sotheby’s, Dish Networks, Toyota, Vodafone, Anheuser Busch InBev, General Motors, HSBC, Macy’s, General Growth Properties, Ralph Lauren, Wendy’s, Cisco, Lionsgate Entertainment, Viacom, Disney, Kohl’s, Nordstrom, DR Horton.

Jobless Claims: This is a weekly report Thursdays. Claims for unemployment insurance were 397k last week, below the 400k threshold considered to signal an improving jobs picture. Still the 4-week average is 406k, so next week would have to continue the trend. Unless Thursday’s number is meaningfully below last week’s mark, rates will be even.

Technical Trading Factors: Looking at stocks, the S&P 500 closed last week at 1253, below the 200 day moving average they topped the week before. Charts suggest a trading range of 1215 to 1285 near term. It’s a broad range but volatility this year warrants it. The theme is similar for mortgage bonds—namely the 3.5% Fannie Mae coupon most lenders use to price consumer rate sheets. They closed the week well above their 50 day moving average, suggesting rates could move a bit lower. But the stock/bond reverse correlation is critical here. The volatility on both sides will continue as investors shift back and forth.

Bottom Line For Rates: Going into last week I said the week would be key to determine whether rates rise near-term or hold this volatile .25%-above-record-low range we’d been in since October 7. Now, record lows (see paragraph 1) seem feasible to touch again given technical trading factors noted above. Next week is a slow economic week so Europe will be the main theme, which means continued extreme volatility. So as I’ve been saying for several weeks, read the post below to understand how to capture the lows.
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Rate Shopper Must-Read:
How To Shop For A Mortgage

As for today’s jobs report, 80k non-farm jobs were created in October, so over the past 12 months, payroll employment has increased by an average of 125,000 per month. Since an employment trough in February 2010, nonfarm employment has expanded by 2.3m, but there are still about 6.6m fewer jobs than the beginning of the recession in December 2007.

Unemployment dropped 9% from 9.1% according to a different part of the jobs report called the ‘Household Survey’ which counts people. More in WeeklyBasis recap tomorrow. Jobs charts below.