Market Snapshot September 2nd

It is employment day, therefore it is a stunning day. The August unemployment rate was unchanged at 9.1%; everyone stunned with the rest of the data. Non-farm jobs were expected up 60K on the most recent estimates, as reported there was no increase---zero; the estimate for non-farm private jobs was an increase of 75K, as reported +17K. In essence, no one hired anyone in August. In July non-farm jobs were originally reported up 117K, that was revised today to +85K; between July and June revisions 58K jobs were taken away from the two previous reports. August factory jobs declined by 3K. Average hourly earnings were expected up 0.2%, as reported -0.1%. Government jobs were down 17K. This has to be one of the worst and most shocking employment report in years. Quotes of the day; Sec of Labor Solis; "we have done all we can"..."I am very optimistic about the future"..."people are waiting for Congress to act"......" incentives so far have worked"....."the President has a plan, we know what works"......"we have had no co-operation from the other side of the aisle"......???

The US economy is declining at a pace even the pessimists are surprised to see and will increase the view the economy is falling back into recession; but is it? As usual with the employment report this one leaves us with a question; why was the unemployment rate unchanged at 9.1%? The stock market is being hit hard on the report, the bond and mortgage markets of course are improving. Is the August report a one and off reaction to the clown show in Washington over the debt ceiling in July? Weekly jobless claims do not show job losses increasing, claims have held at about 400K for weeks, what we have in August is that no one added new jobs. The way Republicans and Democrats and the President acted over the debt ceiling, putting politics above the good of the nation, has dropped the confidence levels from CEOs to consumers; that is clearly evident with this report.  

Senator Corker (Tenn.) on CNBC this morning hit the preverbal nail on the head; he said Washington (politicians) have no idea what makes businesses function. Amen. What took place in Washington in  the aftermath of the 2008 crisis is coming home to roost within the business world. Regulations were piled on by Barney Frank and Chris Dodd as both saw an opportunity to increase government's influence on businesses and consumers. Neither one of them had, or have a clue; Dodd/Frank must be repealed as well as choking the life out of regulators.

The 10 yr note rate fell to 2.04% on the news, down 10 basis points from yesterday's close; mortgage prices jumped up 13/32 (.41 bp) on the initial reaction. The DJIA futures at 9:10 was down 153. At 9:30 the DJIA opened -135, the 10 yr note 2.04% -10 bp and mortgage prices +13/32 (.41 bp).

After this employment report two things will dominate in the next week. What will Obama say in his speech next Thursday evening? And what will the Fed do when the FOMC meets on the 21st of Sept? As for Obama, so far in this economic downturn he has stuck out on about everything he has proposed; lots of rhetoric but no substance, shovel-ready jobs--no, $53B for rapid rail---a waste of money, and it goes on. Republicans no better with the way they performed on the debt ceiling debates----children! The Fed has only on option that might help, QE 2 didn't do anything except print more money and increase the Fed's balance sheet, QE 3. Another easing to ram the 10 yr note below 2.00% that will lower mortgage rates may help some but not much as long as there is no changes in lending polices; underwriting, appraisals, and increased costs. The Fed's likely move may be to lengthen the maturity of its balance sheet; selling shorter dated maturities and increasing the longer maturities with the purpose of pushing the 10 yr lower and lower mortgage rates....1.5% on the 10 yr? not likely.