Market News for the week ending January 5, 2007

[Adam in CO]

Labor Market Stronger Than Expected


This month, the numbers in Friday?s Employment report were unambiguous and the message was clear that the labor market is alive and well. Against a consensus estimate of 115K, the economy added 167K new jobs in December, and the October and November figures were revised higher as well. The Unemployment Rate remained at a very low 4.5% as expected. Additional favorable news for employees came from the December Average Hourly Earnings data, which jumped far more than expected. For the year, wages rose at a 4.2% annual rate, the highest level since 2000. Overall, there were few signs of economic weakness in the data, with the exception of the struggling manufacturing sector. Good news for the labor market is usually concerning for the mortgage market, and mortgage rates rose on Friday, offsetting roughly half of the decline in rates which took place over the prior three days.


Earlier in the week, Wednesday?s release of the minutes from the December 12 FOMC meeting reflected the Fed?s continued inflation fears. Although little changed from the prior statement, it led to a major selloff in equity markets, while its impact on mortgage markets was muted. Overall, the tone was slightly more hawkish than expected, and the outlook for inflation remained a concern. On the other hand, the Fed hinted that they expect slightly slower economic growth than in prior forecasts. Once again, the minutes indicated that future action by the Fed will depend on incoming economic data, and Friday?s strong Employment report will weigh heavily on the Fed at its next meeting on January 31.


In the housing sector, the November Pending Home Sales index stayed roughly flat from October. The index is based on contracts which were signed but were not yet closed, so it is a leading indicator of future home sales. The chief economist of the National Association of Realtors (NAR) suggested that this was further evidence that the housing market is stabilizing.

• Also Notable:
• The Unemployment Rate remained at a very low 4.5% in December as expected
• Wages rose at a 4.2% annual rate in 2006, the highest level since 2000
• The November Pending Home Sales index stayed roughly flat from October
• Oil prices fell to $55 per barrel, the lowest level since June 2005

Average 30 yr fixed rate: Last week:+0.10%This week:-0.14%Stocks (weekly): Dow:12,401-106NASDAQ:2,430+4
Week Ahead

By chance, the economic data is distributed more unevenly than usual in January, and the second and fourth weeks of the month will be relatively light. The first report next week will be Wednesday?s release of the Trade Balance. This information about the quantity of imports and exports has not been a mortgage rate mover recently. After that, Friday?s Retail Sales data will be the week?s only other significant economic data. Consumers account for about 70% of economic activity, and this report is a major indicator of spending by consumers. Fed speakers will provide a possibility of market moving news next week as well.