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The Bureau of Labor Statistics non-farm payroll report showed that the economy lost 36,000 private sector jobs in February. January was revised from -20k to -26k jobs lost and December was revised from -150k to -109k jobs lost. This means 25 of the last 26 months have shown losses, putting the job loss toll since the recession began in December 2007 at 8.4 million. In 2009, 4.8m jobs were lost. BLS also reported that 14.8 million people are unemployed. This is a 9.7% unemployment rate, up 4.8% since the recession began in December 2007. See charts below.

Additionally there are now 8.8 million people who would like to work full time but are working part time because their hours have been cut or they can’t find full-time jobs. This forced-into-part-time-work category is up 4.1m million since January 2008, and increased by 500k this month, offsetting a big drop in January. January’s drop from 9.2m to 8.3m was the first improvement in nine months. This is the fine print of the jobs report—the headline job loss and unemployment statistics show that these 8.8 million people are employed and therefore not in the job loss category, but because of their job status these 8.8 million workers aren’t likely to be consuming at normal levels. Markets are interpreting today’s report as positive—stocks are rallying, bonds are selling off, and rates are higher—but this statistic is mostly undiscussed in market coverage.

An Underwriter Explains Why Are Loans So Hard To Approve
Lately I have been hearing from producers, some of whom are upset about the current lending environment, some not. But for a slightly different view of things, here is what one very experienced and knowledgeable underwriter wrote to me. This is worth the read even for consumers who wonder why their loans are so hard to do:

“It used to be that we could ‘underwrite’ a loan and use common sense to navigate individual circumstances and actually make a decision that a loan was a good credit risk. Then DU and LP [Fannie and Freddie's automated underwriting engines] came along and gave us the laundry list that had to be followed. We were still able to manually underwrite loans for those transactions that did not fit the box. Then the bottom fell out of the business and everyone got scared and new rules came out. Investors and Wall Street were to blame for allowing individuals who were not telling the truth to buy homes. Today investors are pre-underwriting loans prior to purchase and we have to ‘march to their tune’ including getting pieces of paper that seem ridiculous, but since we need the investor to purchase the loan so we obtain them anyway. Only the most qualified borrowers with all their ducks in a row get loans these days. Manually underwritten loans are subject to scrutiny such as we have never seen before and frankly, we do not have the courage to paint outside of the lines because we cannot afford to have a loan purchase refused. Today, it takes two to three times as long to underwrite a loan and we have checklist upon checklist that help us make sure all of the i’s are dotted and the t’s are crossed. I have been doing this for over 30 years and frankly we are back to the rules of the early 80’s or worse when it comes to documentation.” more…

Putin’s Russian Mortgage Stimulus
Any weapons race with Russia doesn’t receive the publicity it did 30 years ago. But whatever you call someone who originates loans in Russia (brokers?) received some good news last week, when Russia’s Prime Minister Vladimir Putin announced that the government will help to lower the mortgage rates investing more than $8.3 billion. The government will provide this money to the banks thus substantially subsidizing the current mortgage rates, which are currently at 14-15% in Russia. Putin set a target rate at 11% with a maximum down payment of 20%.

Is Jumbo Mortgage Comeback for Real?
Do folks here in the US and in the mortgage business have any good news to cheer about, besides rates not being 11%? Some are dealing with the changes in FHA lending and the effect on condominiums. The markets, and interest rates, are facing the end of the Treasury’s purchases of mortgage backed securities and the end of the first time homebuyer tax credit ($8000). The economy does not appear to be rebounding enough to generate much home buying interest, the unemployment rate is hovering around 10%, and foreclosure filings not yet abating. more…

Overall Personal Consumption Expenditures, the Fed’s favorite measure of consumer inflation, were 0.2% in January and 2.1% year-over-year through January. Excluding volatile oil and food costs from the readings, “Core” PCE price index for January was unchanged and 1.4% YOY through January. The Fed looks closely at Core PCE excluding food and energy prices because of the price volatility of these two items, and the Fed’s zone for reasonable inflation is 1-2% per year. At 1.4%, Core inflation is within their comfort zone, as confirmed by the Ben Bernanke’s remarks last week that inflation is likely to be subdued for some time, and the fact that PCE inflation has been stable since summer 2009.

Personal income increased 0.1% percent in January, and wages were up 0.4% since December. The household savings rate dropped from 4.8% to 3.3% but not due solely to consumer spending. The larger reason for less savings is from a 0.6% decrease in disposable income (which is income adjusted for inflation and taxes). The 12 month average savings rate is 4.2% which is well below the May 2009 all-time record of 6.9%. Below are all key details from the Personal Income & Outlays report.

What Economic Stats Are Doing To Rates
Are we heading for lower rates, or higher rates? Certainly there is no inflationary pressure, although GDP for the fourth quarter (generally thought of as “old news”) was revised slightly higher, and was the strongest quarter of economic growth in more than six years. But Existing Home Sales decreased over 7% in January and was much weaker than expected. At over 3 million units available for sale, at the current pace this is almost an eight month supply. And for the sales in January, 38% were “distressed” sales which include foreclosures. (Maybe we’ll get another tax related surge in the coming months based on the April 30th date, maybe not.)

Also on Friday we had the Chicago Purchasing Managers Index show a little increase in February, but the Michigan Consumer Sentiment Index dropping slightly from January’s levels. But how do Purchasing Managers stack up against news from Greece, or the level of foreign interest in buying our debt? They don’t. The threat of ratings cuts for Greece fueled demand for the safety of U.S. debt and Federal Reserve Chairman Bernanke pledged to hold interest rates at a record low – so don’t look for (short term) rates moving much higher. But continued faith in U.S. economy could fade quickly without signs that Congress is crafting plans to address the very large deficit in which we find ourselves – Bernanke believes that deficits need to be brought down to 2.5% to 3% of the nation’s gross domestic product to be sustainable. more…

The second of three 4Q09 GDP readings came in today at +5.9%, making a second consecutive quarter of positive GDP growth after four consecutive quarters of economic contraction (a 60yr record for consecutive GDP declines). The strong initial GDP reading was due largely to acceleration in private inventory investment, a deceleration in imports, and an upturn in nonresidential fixed investment that were partly offset by decelerations in federal government spending and in Personal Consumption Expenditures (which we’ll hear more about Monday). Real GDP in 2009 declined -2.4% versus a +0.4% gain in 2008.

Stocks are up modestly on this GDP update today and bonds (including Treasuries and Mortgages) are up about 22 basis points, which is a big gain. The main reason seems to be because increasing inventories isn’t viewed by markets as a meaningful or sustainable contributor to GDP growth. Consumer Spending needs to be higher before any sustained GDP growth can occur, and the data don’t suggest we’re there yet. All GDP figures are ‘real’ or inflation-adjusted, and the next reading will come on March 26. The last nine quarters of GDP are at the bottom of this post, and you can also visit our Data section to see historical GDP figures, graphs and download data. more…

Treasury Auctions Weigh on Markets
Yesterday’s $42 billion 5-yr auction did not go well. It goes back to the “What if we held an auction and nobody bid?” Indirect bids, which in the past indicated a level of interest from foreign entities but in the last year became a little convoluted, have been on a roller coaster: Tuesday’s 2-yr hit over 53% of the auction while yesterday’s was the lowest since July at 40%. Not good. The Bernanke testimony (rates need to remain low), along with the much worse-than-expected New Homes Sales data, muddled the picture somewhat for investors yesterday. The good news for mortgage folks is that dealers are reporting heavy selling, and selling is often powered by locks, so current locks must be picking up.

New Home Sales Down 11%
The New Home Sales data was particularly bad. In January sales dropped 11%, the worst on record and erasing all the gains from last year. Nationwide, inventory represents over a 9 month supply – the highest in almost a year. And year-over-year the median price for a new home fell in January by 2.4%, to $203,500 from $208,600 a year ago. Regionally, January new-home sales dropped 35.1% in the Northeast, 11.9% in the West, and 9.5% in the South. Sales rose 2.1% in the Midwest. more…

The US Consumer Price Index, which measures inflation at the consumer level of the economy, increased 0.2% in January and 2.6% year-over-year through January. Excluding volatile oil and food costs from the readings, “Core” CPI for January decreased -0.1% and increased 1.6% YOY through January. You can automatically create charts and download historical CPI data by scrolling to our data section on the right side of the site, or visiting our Data page.

Consumer inflation for the month is within the Fed’s comfort zone of 1-2% and was actually less than expectations. If you click on the ‘All CPI, Month’ link in our Data section, it will display a chart at the top of the section where you can see how the volatility of food and especially energy prices causes inflation swings month to month. When this happens traders react accordingly. Rates are tied to bond trading and bonds normally rally on low inflation news (pushing rates down), but today markets are also contending with the Fed’s Discount Rate increase from .5% to .75% last night—this is a signal the Fed is shifting toward a tightening bias and rates are generally higher as a result.

The US Producer Price Index, which measures inflation at the business and manufacturing levels of the economy, was 1.4% in January and 4.6% year-over-year through January. Excluding volatile oil and food costs from the readings, “Core” PPI for January was 0.3% and 1% YOY through January. These monthly “All” and “Core” numbers were higher than expected, and the Core year-over-year number being up 1% is cause for concern. The news has pushed rates higher this morning (along with $126b in Treasury auctions announced for next week), and tomorrow’s consumer inflation number will give us another key inflation signal to follow today’s.

You can click the Monthly ‘All’ and ‘Core’ PPI reports in our Data section (on the lower right side of the site) or going to our full data page, and it will display a chart where you will see the monthly see-saw as inflation rises and falls monthly, which contributes to rate volatility. A lot of this has to do with oil price volatility, which you can also see by scrolling to the Data section. On surface level, market sentiment seems to be that inflation shouldn’t be an issue for some time because aggregate demand is compromised by weakened consumers and businesses, but higher than expected reports like today’s cause markets to question that, and bonds trade wildly as inflation expectations are reconciled.

Impact of Treasuries on Rates
“Suppose They Gave a War and Nobody Came” was a 1970 movie with Ernest Borgnine and Tony Curtis (both of whom are still with us). What if the Treasury gave an auction and nobody bid, aside from Primary Dealers who must bid? That is one of the fears that drove prices down and rates up yesterday, especially with the news that China fell behind Japan to become the second-biggest holder of US Treasuries. That is not a good thing, and is an indication that the Chinese have been acting on recent complaints about US policy by unloading US debt. China was a net seller of Treasuries by $34 billion, bringing its total holdings down to $755 billion from $790 billion in November. Money talks.

Also this morning Treasury announced $126b in Treasury security auctions next week which break down as follows: $8b in 30yr TIPS Tuesday, $44b in 2yr notes Tuesday, $42b in 5yr notes Wednesday, $32b in 7yr notes Thursday. This is leading to a second day of negative MBS trading which has caused rates to rise .25% to .375%. more…