How Job Losses In The Economy Are Helping Home Affordability

On the first Friday of each month, the Bureau of Labor Statistics releases its Non-Farm Payrolls report.

More commonly, it's called the "jobs report".

The jobs report is a sector-by-sector look into the U.S. economy and whether businesses are hiring -- or firing -- workers. This is one of the reasons why its release is so hotly anticipated each month -- the jobs report can reveal a lot about the state of the U.S. economy.

Last month, the economy shed 62,000 jobs.

Now, many people will assume that job losses like this are terrible for the U.S. economy.

Sometimes, that's true.

This month, it's not.

Given the ongoing tug-o-war between inflation and recession, markets are somewhat pleased with the June job loss figures because job losses reduce the likelihood of inflation in the U.S. economy.

Inflation is considered by many -- Ben Bernanke included -- to be among the top threats to the U.S. economy -- it devalues the dollar and leads to increases in the Cost of Living.

Inflation also threatens home affordability because mortgage rates tend to rise when inflation is present.
June's job losses -- while bad for those impacted -- is helping to relieve inflationary pressures on the economy and that is boosting markets performance this morning. Stocks are slightly up, and mortgage rates are slightly down.


(Image courtesy: The Wall Street Journal)

How Mortgage Rates Benefit From 3 Months Of Worsening Employment Data

For the third month in a row, the economy shed jobs, suggesting that the U.S. is in a recession.
March's monthly loss of 80,000 jobs is the largest since March 2003 and follows January and

February's losses of 76,000 each.

The weak data is edging mortgage rates lower as we head into the weekend.
The connection between poor jobs data and today's falling mortgage rates is a little bit strained, but worth discussing. It all comes down to expectations.

Prior to today, there was an expectation that the Federal Reserve's recent rate cuts would over-ignite the economy sometime this Summer. The Fed has cut 3 percent from the benchmark rate since September 2007.

Meanwhile, consumer spending makes up two-thirds of the economy and people can't spend if they don't earn.

So, after today's report showing fewer workers (and falling confidence levels to boot), the largest component of the economy is expected to sag for a while.

This lack of spending should offset the cumulative impact of the Fed's rate cuts and lowers the expectation for runaway inflation later this year.

Now for the connection: If inflation causes mortgage rates to rise, it's the absence of inflation that causes them to fall.

And that's precisely what we're seeing today.