<< Informed continued from Page 84
Dick Lepre is senior loan adviser for RPM Mortgage of Alamo, California, a division of
LendUS. He has been in the mortgage business since 1992 and has been writing a weekly
e-mail newsletter on macroeconomics, mortgages and housing since 1995. Lepre (NMLS
#302379) is from New York City, but he has lived in the San Francisco Bay Area since 1968.
He has a degree in physics from Notre Dame. Follow him on Twitter @dicklepre. Reach him at
(415) 244-9383 or firstname.lastname@example.org.
“Politicians love to take credit for any increase
in jobs. This attention gives the labor report the
power to significantly move Treasury yields and
The jobs report actually consists of two
reports. One is termed the Establishment
Survey, with information coming from
149,000 businesses and government agencies. This produces the count of jobs and the
headline change in jobs seen each month.
The Household Survey covers 60,000 households and it determines the size of the labor
force. The unemployment rate is based on the
Household Survey. It is the number of people
in the Household Survey who say they are
unemployed, divided by the number of people who say that they are in the labor force.
People are in the labor force if they are either
working or looking for a job.
For those in the mortgage industry, the
most important number in the BLS report is
the average hourly wage. Pay attention to
that. Higher wages can translate to higher
consumer prices and higher prices tend to
increase mortgage rates.
Human resources and payroll management
firm Automatic Data Processing, Inc. (ADP)
releases its own report two days before the
BLS report. The ADP report consists only of
private-sector jobs and is viewed as an indicator of what the BLS report will show. It
does not often cause large market movement
because it is an inconsistent predictor of the
The Initial Jobless Claims report is published
Measuring the rest
every Thursday and states the number of
people who filed unemployment claims the
previous week. A low count implies a healthy
jobs market. If the economy is faltering,
ening may first show up. Consider Initial Job-
less Claims below 300,000 a sign of a healthy
economy and jobs market.
GDP measures the size of the economy. The
data is seasonally adjusted, annualized and
expressed in real (inflation-adjusted) dollars.
The goal should be 4 percent annual growth
but it has been less than that for years.
Sustained 4 percent growth does not necessitate inflation. Because government debt
is constantly increasing, we need GDP to
increase at a similar pace.
A recession is defined as two consecutive
quarters of declining GDP. If there is any sign
of recession, the Federal Reserve will lower the
overnight rate immediately. In fact, one of the
reasons the Fed is, at present, increasing the
federal funds rate is so that there is sufficient
room to lower it when a recession occurs.
Inside the GDP report is the GDP Price
Index. This is a metric of inflation where each
component is weighted according to its percentage of GDP. In effect, it combines CPI and
PPI. There also is an on-the-fly GDP estimate
calculated each week by the Federal Reserve
Bank of Atlanta. This can be found by looking
for GDPNow on the Atlanta Fed’s website.
Retail Sales, a report released monthly by
the U.S. Census Bureau, is a measure of con-
sumer purchases of goods. This includes
money spent at restaurants. This is the largest
component of GDP. If consumer purchases
slow, the economy slows and interest rates
Personal Income and Outlays, released by
the Bureau of Economic Analysis, is a broader
measure of spending than retail sales. It
includes spending on goods and services,
including mortgage payments and other
The personal-income report includes wages
and salaries; fringe benefits; income from rent;
dividends and interest; and transfer payments
such as Social Security, welfare and unemployment compensation. People also can spend
their savings or buy things with borrowed
money, both of which reduce future spending.
Debt is the residue of borrowed money
spent in the past that cannot be spent at present or in the near future. If personal spending falls then the demand for goods will fall,
which should translate into low inflation and
n n n
One common misconception is that the Fed
has a significant effect on mortgage rates.
It really does not. The Fed affects the prime
rate, which is used for most home equity lines
of credit, but fixed mortgage rates are only
loosely correlated with the federal funds rate.
Data moves markets and originators who
study the data to get a feeling for how the
data influences interest rates can share this
information with their clients — both helping
them and making you a trusted source. n