Mortgage Rates Snap Back Higher, August 5, 2011

After reaching their lows of the past eight months yesterday, mortgage rates have snapped back today following better than expected employment numbers.  In the over-sensitive markets that have characterized the last couple of years rates change with every variation in the economy, news or politics.  The whipsaw-like movement makes it difficult for purchasers of homes or refinancers to know when to lock-in their rates.  My advice—at these levels it is always safer to lock your rate.  The difference in payment at these current mortgage rate levels is so slight as to make almost no real difference over the short to medium term.

Analysts were all over the board with their expectations for the results of today’s Non-Farm Payrolls report.  Some analyst had the number of jobs in our economy actually declining for the month.  At least one forecasted an increase of 200,000 jobs.  The consensus of the forecasts had job growth coming in at 85,000 new jobs for the month—an insufficient number to impact the unemployment rate given the number of new entrants into the labor force.  The reality is that 117,000 new jobs were created.  This clearly beat expectations and actually brought the unemployment rate down 1/10 of 1% to 9.1%.

What lesson are we to take from this surprise report?  It seems to me that the lesson is this:  the economy is stuck in neutral.  Some months we idle forward, while others we coast backwards.  There is no real energy for our economy to move consistently in one direction or another for any sustainable period of time.  Mohammed El-Erian the CEO of the world’s largest bond investor PIMCO famously dubbed this predicament as “the new normal”, an extended period of very slow growth and low inflation.  While this “new normal” is quite frustrating for many who are looking for work or trying to work out of the whole that has been dug over the past several years, the fact is that it could be much worse.

During this period of frustration both individuals and companies are getting stronger, albeit slowly.  The credit burden of the average American family has declined rapidly over the past three years, while corporate balance sheets are said by some analysts to be “the strongest that they have ever been”.  Patience is difficult, particularly if you are one of the millions out of work.  Yet America is poised for a break out.  My belief is that the break out will be upward—higher growth, more employment.  It won’t happen quickly, but the future is brighter in the US than anywhere else in the world.

We need bold action to further restrain our government spending.  We need banks and companies willing to take risks to fund and build new technologies and employ workers.  The productive capacity of the United States is unmatched.  We are close—I believe—to seeing that engine start to chug forward again.  We may have to go backwards a little first, but with a little patience we will climb that hill. “I think I can, I think I can, said the little engine.”