The REAL Unemployment Numbers Are Revealed

The unemployment numbers for December came in last Friday…85,000 jobs were lost, 10,000 more than expected. The Unemployment rate remained at 10%. How does that happen where you lose 85,000 jobs and unemployment remains the same? Sounds a little suspect to me. So I dug deeper to find out what is really going on here.

Here’s what I found. The 85,000 job loss comes from the “business survey”, which uses many estimation tools, including the birth-death ratio for businesses. The mechanics in coming up with the business survey allow the information to be gathered quickly, but it also makes the information far less accurate. That’s why you see the previous month(s) numbers revised often times.

Another survey that is used is the “household survey”, where a sampling of households receive actual phone calls. This survey is used to get the rate of unemployment – but the survey can also give you the number of people in the workforce, as well as its own version of job losses or creations each month. And last month, the survey indicated that 661,000 left the workforce.

What does that mean, “leaving the workforce”? It’s a “discouraged worker”, who has not looked for a job during the past four weeks. With this in mind, I feel there are a few contributing factors that would help us understand why this would indicate such a large number of people “exiting the workforce.” And more people leaving the workforce means less people counted as unemployed.

There is a lesser known report that the Labor Department releases that does include the short-term “discouraged worker”, as well as those who are employed part time, but really want a full time job. They call this the “U6 Unemployment Rate” and it rose to 17.3% in December. The U6 report showed a humongous 589,000 jobs lost, which is a much better picture of what really happened.

Finally, if you add long-term “discouraged workers”, you get the chart below, with unemployment running close to 22%. This is quite a different version from the “officially” released version.


The first thing we have to do to turn things around is tell ourselves the truth. This is a good start. Now let’s start creating jobs that will put people back to work.

How Does A Higher Unemployement Rate Translate Into Lower Mortgage Rates?

Last week's jobs report is the latest data point to drag down rates for today's home buyers and would-be refinancers.

As reported by the government, the national Unemployment Rate rose to 9.5 percent in June -- a 25-year high.

As the percentage of out-of-work Americans grows, households have less disposable income to pump back into the economy.

And so, because consumer spending accounts for two-third of the economy, the growing ranks of the unemployed are forcing markets to change expectations about when the U.S. economy will reach its full recovery.

Inflation is the enemy of mortgage rates. The perceived absence of inflation, therefore, can be its friend.

With fewer working Americans, we can expect slower economic growth plus a smaller probability for inflation over the medium-term. This is why mortgage rates are lower of late, off by as much as a half-percent from the peak.

Unemployment Rate Increase Lowers Mortgage Rates

On the first Friday of every month, the government releases its Non-Farm Payrolls report, or the "jobs report."

The two-page analysis examines the nooks and crannies of the U.S. economy to see which industries are hiring and which are firing.

The August jobs report was released this morning and it shows that the U.S. economy lost 81,000 jobs in August.

This marks the eighth straight month in which payrolls declined and puts the annual job loss total at 605,000. The Unemployment Rate jumped to 6.1% -- its highest level in 5 years. By comparison, at it's lowest it stood at 4.6%.

For American workers, this is bad news. But, for American home buyers, the news couldn't be better.

Mortgage rates are improved this morning on weak jobs data.

If this seems counter-intuitive, remember that earlier this year, lingering concerns about inflation in the U.S. economy caused mortgage rates to rise to their highest levels in more than 5 years.

Lately, however, those fears are subsiding and as today's jobs report shows worse-than-expected weakness, it's one more reason for markets to put inflation concerns to rest. With fewer Americans working, there are fewer dollars are available to propel the economy forward, after all.

So, today's jobs data is good for mortgage rates because it reduces inflationary pressures on the economy and as inflation levels fall, mortgage rates tend to do the same.

Combine the lower interest rates with the news that San Diego is now one of the most undervalued housing markets in the nation, and things are looking up for home buyers.

Looking Back and Looking Ahead: July 28, 2008

On the wave of a two-day rally, mortgage rates improved last week overall. This despite a Friday reversal that had caused rates to tick higher just before weekend house-hunting began.

And, like so many other weeks this year, last week's mortgage market activity was defined by its quick-moving interest rates.

At least one major mortgage lender issued 11 separate rates sheets between -- an average of more than 2 per day.

Now, as an active mortgage rate shopper, you can't predict mortgage rate volatility but you can be prepared for it.

Start by knowing which mortgage product is the best fit for your long- and short-term financial goals and then be ready to pounce on a "good rate" because the rates expire as soon as that next rate sheet gets issued.

Another effective way to prepare for shopping is to watch for data that can influence the market's opinion of the U.S. economy. This week, there's a lot of it -- starting with Tuesday's Consumer Confidence report. When confidence levels are high, economists expect Americans to spend more, propelling the economy forward towards inflation.

Inflation makes mortgage rates rise.

Then, on Thursday, the Employment Cost Index data is released. This will be a closely-watched figure this month because it should show if American workers are pressuring employers for raises in light of higher gas and food prices. If wages are up, it will be considered inflationary because businesses eventually pass that cost back to consumers.

Again, bad for mortgage rates.

And lastly, on Friday, the jobs report will be released. American businesses have shed jobs in each of the last 6 months, and June is expected to show the same. The jobs report's influence on mortgage rates is enormous so expect big rate swings Friday, either up or down.

Overall this week, considering the weight of the data, it may be prudent to finish-up rate shopping as soon as possible and get locked in with your lender. As the week progresses and the data's import grows, the markets should get less and less stable.

Looking Back and Looking Ahead

Last week was fairly uneventful in the mortgage markets, with rates slightly edging lower across the board and without much data to influence trading.

Even Thursday morning's hotly-anticipated jobs report was met with lukewarm interest; many traders had already left for the weekend.

Mortgage rates just drifted -- a little up and little down, but mostly unchanged.

Mortgage insiders may have found last week to be boring, but for active home buyers, the semi-lull was a welcome break from the up-and-downs that have gripped the markets since January.

It's been three consecutive weeks without a substantial increase to mortgage rates.

This week, rates aren't expected to be as calm because Fed Chairman Ben Bernanke is taking two heavy topics and making public speeches about them.

The first speech is to the FDIC on Tuesday. The speech will focus on mortgage lending. The second is to House Financial Services Committee on Thursday and it will cover financial market regulation. In both speeches, expect Bernanke is expected to address inflation and the health of the U.S. banking system.

These two subjects are closely linked to mortgage rates so watch for rate movement during, and after, the speeches.

If Bernanke says inflation is moderating, mortgage rates should fall.

If Bernanke says the financial system is stabilizing, mortgage rates should rise.

From a data perspective, there's not much doing other than Friday's Consumer Confidence survey. Confidence surveys don't have a direct impact on the economy, but markets are watching them more closely. A strong reading could benefit the stock market which should, in turn, cause mortgage rates to rise.