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Lame jobs report great for borrowers

September 4, 2014
by admin

The August employment report was a disaster. But it should help keep a lid on mortgage rates for now. Man-in-suit-holding-a-looking-for-a-job-sign

Job growth slowed significantly in August as employers added only 142,000 jobs last month, the lowest level of the year, according to the report released today by the Bureau of Labor Statistics. Economists expected about 225,000 new jobs.

“The economy didn’t create the jobs that we thought it would create and that was a big disappointment,” says Paul Edelstein, U.S. director of financial economics for IHS Global Insight.

What does this have to do with rates?

It’s not totally clear yet why the report came in below expectations, Edelstein says.

“If you look at the other indicators, those have been pretty robust,” he says. “At the moment this could just be several months of good numbers followed by a bad number. But it will introduce some hesitance.”

As investors digest the news, they might hesitate to bet on riskier investments and will want to stick to safer investments, such as U.S. Treasury and mortgage bonds. Whenever investors are scared and seek the safety of those investments, bond yields drop. Mortgage rates tend to follow the same direction.

“We are not likely to see an aggressive advance in bond yields anytime soon,” he adds.

That’s great news for those who plan to get a mortgage in the near future.

The weak number might also prevent the Fed from planning an interest rate hike before mid-2015. The Fed will probably want to wait to make sure that this jobs report was an “aberration” and not a sign that the economy has slowed, Edelstein says.

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