The Economy is Slowing

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April ADP private jobs data out at 8:15; one more data point that adds to our view the economy is slowing and the Fed has no choice but to keep pumping money into the system just to keep the economy frm becoming even less robust. ADP was widely expected to report private jobs increased 155K, that in itself is a rather anemic improvement; ADP said private jobs were up just 119K. In Mach ADP said private jobs increased 158K, today the March growth was revised to 131K, a decline of 27K. There was almost no increase in jobs outside of the service industry that accounted for 113K of the 119K reported. No matter how anyone tries to spin it, the employment sector is not growing, not even able to match new job entrants in the labor force. So far the Fed’s QEs, based on employment, is not showing any progress. Businesses fear health care costs, potential tax increases, a soft retail sector, weak consumer spending and increasing regulations being generated almost daily from Washington. By 9:00 there was little market reaction to the softer job growth; the stock indexes hardly moved, the 10 yr dropped one basis point to 1.66% and 30 yr MBSs up 10 bps. Earlier this morning the MBA mortgage applications for last week. Total mortgage applications increased 1.8% from one week earlier. The Refinance Index increased 3% from the previous week and is at its highest level since the week ending January 18, 2013.  The seasonally adjusted Purchase Index decreased 1.4% from one week earlier. The refinance share of mortgage activity was unchanged at 75% of total applications from the previous week. The adjustable-rate mortgage (ARM) share of activity was unchanged at 4% of total applications. The HARP share of refinance applications increased from 32% last week to 34% this week, the highest level since MBA began tracking HARP applications in February 2012. The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,500 or less) decreased to 3.60%, the lowest rate since December 2012, from 3.65%, with points decreasing to 0.30 from  0.41 (including the origination fee) for 80% loans.  The average contract interest rate for 30-year fixed-rate mortgages with jumbo loan balances (greater than $417,500) increased to 3.80% from 3.75%, with points decreasing to 0.29 from 0.37 (including the origination fee) for 80% loans.  The average contract interest rate for 30-year fixed-rate mortgages backed by the FHA decreased to 3.34% from 3.37%, with points decreasing to 0.37 from 0.64 (including the origination fee) for 80% loans.  The average contract interest rate for 15-year fixed-rate mortgages decreased to 2.84%, the lowest rate since December 2012. Treasury announced the amounts for next week’s refunding auctions; there was some thinking that Treasury would not need to borrow as much with tax revenues increasing with the increase in payroll taxes. Not the case; Treasury will auction more than previous auctions, $32B of 3 yr notes, $24B of 10 yr notes and $16B of 30 yr bonds. 10 yr and 30 yr both up an additional $3B frm last month’s auctions. At 9:30 the DJIA opened -40, NASDAQ -1, S&P -3; the 10 yr note 1.64% -3 bp and 30 yr MBS prices at 9:30 +15 bps. Two more data reports at 10:00; March construction spending, expected up 0.6%, another huge miss, down 1.7%. The April ISM manufacturing index was expected at 51.0 it fell to 50.7; still above 50 but yet another disappointment. The data pushed stock indexes down more and the 10 yr note at 1.63% -4 bp today; 30 yr MBSs a little better than at 9:30. At 2:00 this afternoon the FOMC will release its policy statement. Given the continuing slowdown in the economy based on all the data recently, the Fed is likely to confirm its commitment to QE purchasing $85B a month of MBSs and long dated treasuries along with re-investing the pay downs on the large MBS portfolio the Fed holds. There will be no Bernanke press conference after the policy statement. Everything still a go for lower interest rates. If we see more weak data as has been the case for the last month it is very likely the 10 yr note yield could run to its lowest on record at 1.56%. Not that far away at the moment.