Mortgage Rates, Unemployment, Manufacturing

January 21, 2016

Thursday – January 21

Global economic woes pushed investors to the safe haven of the Bond markets to begin the new year and out of riskier assets, such as Stocks and commodities. When Bond prices rise, mortgage rates tend to push lower as they have an inverse relationship. Freddie Mac reports that the 30-year conventional fixed mortgage rate ($417,000 or less) fell to 3.81% this week from 3.92% with an average point of 0.6. The slowdown in China’s economy coupled with plunging oil prices are a few of the reasons for the rush into the safety of the Bond markets.

Americans filing for first-time unemployment benefits rose to a 7-month high in the latest survey, signaling layoffs have picked up from the record lows seen in 2015. The Labor Department reported that Weekly Initial Jobless Claims rose by 10,000 in the latest week to 293,000, which was above the 280,000 expected. However, any number below 300,000 is considered a strong labor market. Back in October, claims hit a post-recession low of 256,000. The numbers are quite volatile from Thanksgiving until Martin Luther King Jr. Day due to employers hiring and laying off for the holiday shopping season.

The manufacturing sector continues to contract, raising questions as to the strength of the U.S. economy. The strong dollar coupled with the steep decline in oil prices are seen as the headwinds for the sector. A stronger dollar has made U.S. exports more expensive for international markets, while the drop in oil prices have led energy companies to reduce spending on equipment, which has hurt the manufacturing industry. The Philadelphia Fed Manufacturing Index came in at -3.5 in January, just above the -4.0 expected. A reading above zero indicates expansion in the sector whereas a reading below zero points towards contraction.