Stocks are a bit lower and Bonds are a bit higher after some mixed economic data. ADP released their Employment Report for April, and the report showed that there were 220k jobs created. This was stronger than the 210k expected, and the best ADP number since November. Adding to the strength of the report was a significant revision higher to last month’s figure from 191k to 209k. This report sets up for a strong Bureau of Labor Statistics (BLS) number on Friday. But what types of jobs are being created? As we identified last month, most of the BLS Jobs created were either part time, or low paying. The market will react initially to the headline number, so we can expect Stocks to rally and Mortgage Bonds to fall if the BLS number comes out stronger on Friday.
With stronger jobs growth, we would expect GDP to be strong as well. This may be further evidence that the types of jobs this country needs are not being created. The Advance reading for the 1stquarter GDP came to a standstill, raising only 0.1%. This was a terrible number and much weaker than the 1.1% expected. Weather was blamed for the big miss in this number, but we feel there is some underlying weakness.
The Employment Cost Index, which is a good measure of wage based inflation, was up only 0.3%. This was about half of what was expected. When we connect the dots, we see a lot of job growth but no wage pressured inflation. So maybe the pay is lower and again shows that we are not getting the full time, higher paying jobs.
Earlier this morning, The Mortgage Bankers Association released their weekly Mortgage Application data for the week ending April 25th, and the index was reported down 5.9%. The Purchase Index, which fell by 3% last week, dropped another 4%. Purchases are now down 21% from this time last year. Interest rates remained unchanged at 4.49% with 0.38 points paid. Refinances continued their slide and fell by 7%. The decline this week cannot be blamed on any holidays, and shows some serious weakness in applications.
Later this afternoon at 2:00pm ET we will get the results from the Fed’s 2 day meeting. we fully expect the Fed to continue to reduce QE3 by another $10B this afternoon, bringing the total reductions to $40B off of the $85B during QE3. The reduction will split evenly between MBS and Treasuries, taking the Fed’s monthly purchases from $55B to $45B, which will be $25B in Treasuries and $20B in MBS.