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Employment
Data Below Forecast
A slow
economic recovery and the possibility of a Fed policy change helped
mortgage rates move a little lower again this week. As a result of recent
weak economic data, the Fed is reportedly considering the purchase of
additional mortgage-backed securities (MBS) to replace maturing securities.
These factors, along with limited inflation, make current economic
conditions supportive of low mortgage rates.
In
particular, Friday's weaker than expected Employment data was positive for
mortgage rates. Against a consensus forecast for a loss of -90K jobs, the
economy lost -131K jobs in July. This included the loss of -143K census
positions. Private employers added 71K jobs, below expectations of 100K.
The Unemployment Rate remained at 9.5%. Average Hourly Earnings, a proxy
for wage growth, rose at a tame 1.8% annual rate.
To
stimulate the economy, the Fed purchased $1.25 trillion in mortgage-backed
securities (MBS) in 2009 and early 2010. Due to defaults, refinancings, and maturities, some MBS "roll
off" the Fed's portfolio every month. Until recently, investors
expected the Fed to let its portfolio slowly shrink in this fashion.
Tuesday, though, a Wall Street Journal article suggested that Fed officials
are considering a plan to replace those securities with new purchases to
further stimulate the economy. Investors are divided about whether recent
economic data has been weak enough for the Fed to decide to do this. It may
be addressed at the August 10 FOMC meeting. While the demand created by
this action would be small compared to the original MBS purchase program,
it would further support low mortgage rates.
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