|
June 29, 2001
Once again, mortgage rates did not fall in response to a Fed rate cut. Worse, by Thursday, the combination of fewer job losses in June and news of discord within the Fed took mortgage rates back to the high of the year.
There are years when the "high of the year" is a dramatic and painful development, but this isn't one of them: 30-year rates have spent the whole year in the low sevens, and the "high" has been a hair under 7.50%.
Each Thursday the Labor Department estimates the number of people who have filed new claims for unemployment insurance. The data series is a leading indicator for the comprehensive, first-Friday-each-month non-farm payrolls and unemployment report; June's results are due July 6.
While volatile week-to week, the four-week average of new claims is pretty good data. The newest figure shows a decline in new claims -- not much, down 8,000 to 416,000, but markets had expected the rapid up-trend to continue.
Now, here's where the bad-news-is-good-news, good-news-is-bad-news loses non-trading civilians. Claims rising would have suggested a lousy overall employment report next Friday, and held mortgage rates down. Instead, falling claims suggested an end to job market weakness, a recovery closer by, and drove long rates up.
Nothing is more important than the job market, now -- not even the stock market. There is no engine for renewed economic growth, and consumers are the sole prop under the economy until we find one. If this business-led slowdown results in heavy layoffs, not just dot-goners, then consumers will slow spending and the economy could tank. That, by the way, is the mechanism which would knock mortgages into the sixes.
Business data still shows a downward spiral: help wanted ad volume has fallen 27% in the last year, and fell 8% in May alone. Airline revenues in May were the worst in 20 years (as far back as data go), dragged down by collapsing business travel. As of early April, the consensus forecast for profits among S&P 500 companies in the third quarter called for a 2% increase from last year; by early May, a 3% decline; now, a 6% decline.
Minutes of the Fed's May meeting revealed a dissent: inflation hawk Thomas Honig of the Kansas City Fed voted against the .50% rate cut, and other governors spoke in agreement with Honig, but voted with the Chairman. Single-vote dissents are common, but this one feels like a proxy for larger disagreement with Mr. Greenspan's inflation optimism and desire for aggressive easing.
It's intellectually reassuring to know that the Fed is as confused by this weird, strong-consumer, weak-business situation as everybody else, but emotionally I wish they were unanimous, and sure.
|
