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April 6, 2001
A modest decline in March payrolls is getting more play in the press than in the markets, and low-fee mortgage rates are holding above 7.00% -- closer to 7.25% during a lot of the week.
The stock market is coughing up some of yesterday's record gain, but likely would have anyway, without the negative job news. Treasury bonds have rallied today from 5.53% to 5.45%, but are trading way above the 5.21% during the worst of the stock market sell-off ten days ago.
While it is true that the net loss of 86,000 jobs in March is "the largest single-month decline in payrolls since 1991", the statistic overstates the economic reality.
Other aspects of the labor market are more descriptive. The unemployment rate rose .1% to 4.3%, but if that means we are in a recession, we should have more like this one. The percent of Americans holding jobs fell from 64.4 in February to 64.3 in March -- a decline, but hardly distress.
The look-back to 1991 is useful in one regard: in recession cycles, the unemployment rate usually peaks at the very end of the recession or early in the post-recession recovery. The 1990-91 recession ended five months before the lousy payroll report in November 1991.
Three regional Fed presidents (McTeer, Parry, and Meyer) this week took pains to say that this economic downturn is about over, and forecast a rebound in the second half of this year. If this FedPrez index is correct, we could begin to see a gradual rise in mortgage rates at almost any time.
We could, but I bet we don't -- or that a rise doesn't amount to much. There are three rate retardants in place: business caution, investor hunger for yield, and trouble overseas.
Business caution presents as an extreme clampdown on discretionary spending. Business airline travel was down almost a third in the 1st quarter of this year, turning airline earnings negative; American Express had a terrible quarter as business credit card usage plunged; and Federal Express also suffered from expense-cutting mania.
Investors are going to get hungry for yield, as rates on record-high money market deposits fall from six-plus to four-minus, sagging with Fed easing. Mortgages paying 6.5% (net of servicing costs) will look better and better.
Overseas means Japan, closer to the edge every day... and Korea, now propping its Crash of '98-level stock market with government pension money... and China, throwing around weight it doesn't have, and throwing away political capital in the US....
Trouble in any of these places helps the almighty Buck, and suppresses rates.
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