THE BASIS POINT

WeeklyBasis 1/1: Got Jobs?

Rates ended even last week, holding .125% above record lows: 30yr single family home loans to $417k closed at 3.875%.

Below I recap last week’s housing and jobs data, and preview the rate and stock week ahead. Scroll to ‘Bottom Line’ if you’re in a New Year rush. And I offer humble thanks to all my WeeklyBasis readers as I kick off year nine of this report.

RECAP DECEMBER 26-30 MARKET WEEK

Home Prices Down Again: Last week, Case Shiller reported prices of existing single family homes across 20 major U.S. metro areas fell 1.2% in October and fell 3.4% since October 2010. This is the second straight declining month following a five-month ’20-City’ streak of modest rises. This followed FHFA’s report on 12/22 showing the same trend for homes with Fannie/Freddie loans: October was -0.2% month/month and -2.8% year/year. CoreLogic and Zillow November home price reports come out in the next two weeks–their October reports confirmed the down trend.

Blowout Pending Home Sales. But Beware: New purchase contracts to buy existing homes were up 7.3% in November and up 5.9% since November 2010. At 100.1, this NAR pending home sales index was the highest in 19 months. April 2010 was last time index was higher (111.5) as buyers rushed in to get federal homebuyer tax credits. This report was strong but remember: 33% of realtors reported cancelled deals on existing home sales October and November, and this pending home sales report is a leading indicator of existing home sales expected to close in 60 days.

Improving Jobs Data: Claims for unemployment insurance were up for the week but down for the month. Jobless claims were 381,000 for week ended December 24, up 15,000 from previous week, and the 4-week moving average was 375,000, down 5,750. Average claims since 2000 are 390k, so even with the weekly rise, the 1-week and 4-week numbers are still better than long-term trend. But this number doesn’t capture newly hired people or new jobs created. That data is in this Friday’s jobs report, previewed below.

PREVIEW JANUARY 3-6 MARKET WEEK

Next week’s economic calendar is all about jobs, but also has important manufacturing and chain store sales data. Below are noteworthy reports with rate impacts.

ISM Manufacturing: Tuesday is the Institute for Supply Management’s December manufacturing report, which was 52.7 in November, with 50 as dividing line between between expansion and contraction. Good news: November was the 28th month of growth and a 5 month high. Bad news: growth has been slim. December estimates call for 53.4. Also ISM’s December non-manufacturing index that measures services industries is due Thursday. Estimates call for 53, a slight increase over last month’s 52 which was the lowest since January 2010’s reading of 50.7. Rates won’t swing big on these reports unless there’s an unlikely surprise.

ADP Jobs Report: Thursday is payroll provider ADP’s December jobs report. In November, ADP showed 206,000 jobs created, and December estimates call for 200,00. This is a precursor for Friday’s main event: the BLS jobs report. If it exceeds expectations, rates will rise.

Jobless Claims Trend: Last week’s jobless claims rose as recapped above. Thursday’s report will be closely watched to see if the rise sticks or not. Rates even as markets hold for Friday.

Holiday Retail Sales: The ICSC-Goldman Sachs and Redbook Research chain store sales numbers released each week give a more frequent retail sales read than the Commerce Department’s monthly retail sales report. That doesn’t come until 1/12, but we’ll see Wednesday if ICSC-Goldman and Redbook numbers for 12/31 can continue the positive holiday shopping trend they showed last week: ICSC +4.5 and Redbook +4.3, both year-over-year figures for week ended 12/24. Minimal rate impact short-term.

The Week’s Main Event–BLS Jobs Report: Estimates call for the Bureau of Labor Statistics December jobs report to show 150-165k new non-farm jobs created vs. the 120k created in November, and for unemployment to rise from 8.6% to 8.7%. There are two different datasets for jobs gained/lost and unemployment, so this report is usually a wildcard as markets sort through it. We’d have to be on the upside of expectations for rates to rise. I cover this and all data daily, so stay tuned.

Stock & Bond Technicals: Looking at stocks, the S&P 500 closed at at 1258, down .55% on the week, ending right near its 200-day moving average of 1259, and ending 2011 exactly even. As for the first week of 2012, Bespoke says that, since 1928, the S&P 500 has averaged a .61% gain to start the year with positive returns 65% of the time. As for mortgage bonds (MBS), the 3.5% Fannie Mae coupon—a key benchmark lenders use to price consumer rates—rose 85 basis points on the week to close at 102.83. Normally a rise like this would cause a nice rate drop, but lenders held the line a second week since MBS moves were on very low volume. MBS are now a comfortable 60 basis points above their 25-day moving average after closing below it Friday, December 23.

Bottom Line: Last week, I said “rates should be even to up slightly as the 25-day average on MBS is tested.” As noted above, MBS rallied to close well above that 25-day average mark. However, rates stayed even despite the rally because volume was light and lenders were conservative about adjusting rate sheets until normal volume returns to provide more reliable signals. I expect rates to remain even to up .125% next week as MBS stick to their multiweek pattern of holding at the 50-day moving average even if stocks rally.