Rate Watch #1168 – November BLS.

December 10, 2018

by Dick Lepre



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The important event last week was not any of the fundaments but rather the very significant drop in Treasury yields. We may have seen on 12/4 the genesis of the long-overdue secular bull market for Treasuries. Note that the tech forecast completely contradicts what was essentially everyone’s opinion.  These are the conditions for the technical bull cycle to become official: 1) the monthly tech must remain upcrossed at the end of the month and 2) the K/D spread must be at least 5.  It closed yesterday at 20.15/18.63.  The picture of the monthly K/D is the bottom graph on this page http://www.stomaster.com/stopdfdc.pdf

The most significant macroeconomic data released last week was the BLS Employment Situation Report which is discussed in detail below.

A recap of last week's fundamentals is here.



Conforming Loan Limits for 2019

Maximum Loan Amount for Traditional conforming by number of units

1              $484,350

2              $620,200             

3              $749,650             

4              $931,600             


Maximum Loan Amount for High-Cost Areas for 2019

1              $726,525

2              $930,300

3              $1,124,475          

4              $1,397,400

You can find the new High-Balance Conforming limit for your county here.  Select your state from the pull-down, type your county name and be sure to select "Fannie/Freddy" (not FHA) from the pulldown for Limit Type.

Inside the BLS Employment Situation Report

No economic fundamental gets as much attention as the BLS Employment Situation Report. People understand jobs and unemployment better than they understand CPI. Politicians love to take credit for any increase in jobs.

The Jobs Report is actually two reports. One is termed the Establishment Survey which is a survey of 149,000 businesses and government agencies. This produces the count of jobs and the headline change in jobs announced each month. The Household Survey is a survey of 60,000 households. This produces the size of the Labor Force. The unemployment rate is based on the Household Survey. It is the number of people in the Household Survey who say they are unemployed divided by the number of people who say that they are in the Labor Force. You are in the Labor Force if you are either working or looking for a job.

Each item below is suffixed with (H) if it is from the Household Survey, (E) if it is from the Establishment Survey, and (B) if it is from both.

- Headline seasonally adjusted data was +155,000. Adjustments to the previous 2 months subtracted 12,000 making the actual change from the previous report +143,000.

- Nonfarm Payrolls not seasonally adjusted month/month +475,000. (E). 

- the size of the civilian noninstitutional adult population increased by 194,000 to 258,708,000 (H).

- 133,000 more people were in the labor force last month. (H).

The Labor Participation Rate held steady at 62.9%. It was 62.7% a year ago.

- the Unemployment Rate held steady at 3.7%. It was 4.1% a year ago. (B) This remains the lowest rate since 1969.

- Average nominal Hourly Earnings was $27.35 up from the previous month's $27.29. (E)

- Average work week dropped from 34.5 to 34.4 hours (E). 

- Private jobs were +161,000 (without adjustments for previous 2 months). Government jobs were -6,000. (E).

- We need about 120,000 more jobs each month to keep the Labor Participation Rate constant given the size of the increase in the Civilian non-institutional Adult Population. This makes the seasonally adjusted/population adjusted jobs gain 23,000.

- Good producing jobs were +29,000. (E). Manufacturing jobs were +27,000. Construction Jobs were
-3,000. (E) These are seasonally adjusted.

-The labor participation rate (percent of adult noninstitutionalized population who are part of the labor force) was 62.9%. It peaked at 67.3% in April 2000. While much of the recent downward trend in Participation Rate is demographic (aging population) the fact is that this smaller participating percentage is going to have to carry the economy and generate tax revenue to pay for the increasing cost of Social Security and Medicare.

Look at this table of Labor Force Labor Participation Rate for men aged 25-54 https://data.bls.gov/timeseries/LNS11300061

It was 98% in 1954, 96.0% in 1968, 91.5% in January 2007 and is now 89.0%. The Labor Force Participation Rate for men aged 25-54 in the U.S. is much lower than most OECD nations. In recent years the Unemployment Rate for men has consistently been higher than the rate for women.

Last month BLS measured 4 sets of people entering or leaving the jobs market:

- Job losers and persons who completed temporary jobs was 2,808,000 down 42,000 from previous month's Job Losers and down 341,000 year-on-year. (H)

- Job leavers was 704,000. This includes anyone who retired or voluntarily left working. This is down 22,000 from previous month and down 35,000 year-on-year. (H)

- Reentrants was 1,869,000. Reentrants are previously employed people who were looking for a job and found one. This was +29,000 from the previous month and -95,000 year-on-year. (H)

-New entrants were 606,000. These are people who never worked before and who are entering the labor force for the first time. This was +20,000 from previous month and -56,000 year-on-year.

One line in the BLS Report is termed "People employed part-time for economic reasons." These are people who want to work full time but their employers, for whatever reason, decide to employ them only part-time. In this month's report this figure was +181,000 at 4,802,000.

Average hours worked for men was 41.0 hours/week. Average hours worked for women was 36.6. That is an 11.2% difference and remains the largest source of the gender pay gap. For some reason this fact almost always is left out in discussion of wage inequality. http://www.bls.gov/web/empsit/cpseea27.htm

Note that BLS Establishment Survey measures jobs not people working. If you go to FRED at the St. Louis Fed you can see that the number of multiple job holders in November was 7,934,000 down from 8,093,000 in October. The FRED multiple-job holder data is not seasonally adjusted.   https://fred.stlouisfed.org/series/LNU02026619

The unemployment rate for African-Americans fell to 5.9%. The unemployment rate for Hispanic or Latino workers was 4.5%. When the overall unemployment rate is low, racial disparities in unemployment are lower.  The reality is that unemployment and wages are highly correlated with education. The unemployment rate for Asians was 2.7% in November.

The in Average Hourly Wage may have modestly mitigated concerns that the very low Unemployment Rate would cause inflation. It is important here to that is has long been assumed that an unemployment rate as low as we have had would cause wage inflation which generally creates higher inflation (CPI) but the fact is that this simply is not happening. Nonetheless the concern of the Fed is still that the ultra-low unemployment rate will cause wage inflation which will translate into price inflation.  Since the Fed is on a rate hiking path they will see this very low Unemployment Rate as supporting their current path.

It appears that the jobs market has entered a period of slower growth. It may no longer be
spectacular but merely healthy. For folks concerned about interest rates the important this is that we just went through a period of very significant gain in jobs with very low wage inflation.

Technical Analysis from Jim Grauer

Expect the Note to bracket trade in the 2.85%-3.15% yield level this week.

Entire stochastic analysis is here http://www.loanmine.com/CustomPage378.x


Dick Lepre
Senior Loan Advisor

3240 Stone Valley Rd West
Alamo, CA 94507

Cell: 415.244.9383
eFax: 866.488.2051
BRE License # 01143973

NMLS #302379



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